SBM blocks fintech partners’ credit cards at short notice

by James · April 2, 2023

SBM Bank India, the wholly-owned subsidiary of foreign lender State Bank of Mauritius (SBM), has blocked the corporate credit cards it offered in partnership with several fintech players in India following a diktat by the Reserve Bank of India (RBI) to update their “know customer’s (KYC) details, several people with knowledge of the development told VCCircle.

Several credit card holders complained of receiving the email from the bank just days before, with some receiving it just hours before their cards were suspended from midnight on March 31.

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Several credit card holders complained of receiving the email from the bank just days before, with some receiving it just hours before their cards were suspended from midnight on March 31.

“On the morning of 31 March at 08.07 I received the email from SBM Bank that ‘We would like to inform you that your Kodo SBM corporate card will be on hold, temporarily, with effect from midnight 31 March 2023, for requests for reKYC’. None of their customer service numbers or emails responded after that. It’s shocking that they suddenly just block our cards without warning,” said a fintech executive who runs a debt lending platform.

Another executive said that this is the primary card used by thousands of startups and fintech customers who may have trouble making transactions: “There is no substitute as big banks don’t serve startups with credit cards.”

The impact is across all major fintechs with credit card offerings in partnership with SBM India, such as M2P, RazorPay, KODO, Karbon, EnKash whose customers’ cards were blocked in a sudden move. Most of these fintechs count venture capital and other private investors.

A majority of the 10 lakh credit cards issued by SBM Bank have been blocked. As on February 28, SBM’s total credit card outstanding stood at 10.33 lakh, RBI data showed.

Some cardholders also complained that none of their customer services responded until the weekend and had failed transactions linked to the cards.

After receiving no response from the bank, Suraj Dhirwani, a doctor and healthcare consultant, posted on Twitter: “No previous emails. No communication. Email at 9.05pm saying business cards will be ‘on hold’ from midnight.”

Speaking to VCCircle, Dhirwani said, “Three hours is not time to give a deadline. I bought the card through RazorPay only six months ago, I don’t understand why re-KYC became necessary in such a short time. This seems unethical, and I strongly suspect that SBM does not have systems in place.”

RazorPay declined to comment. Emails sent to the RBI did not elicit an immediate response and will be updated when it co

For now, the fintech partners and SBM have informed their customers to do re-KYC to avoid blocks.

Two of the fintech players affected by the move spoke to VCCircle to say they too have been left clueless by SBM’s sudden decision.

“The fact that they did so in such a short period of time shows that it may be something the regulator would have wanted on an urgent basis. Until we receive a communication from the bank about the reasons, we have asked all our corporate credit card customers to update their KYC. The bank has asked us to inform customers about updating KYC, that’s it,” said one of the fintech players.

“At SBM Bank India, meeting regulatory requirements is a top priority. This includes a sustained focus on conducting periodic checks and monitoring at the customer level, both during onboarding and throughout their lifecycle,” according to an SBM Bank spokesperson, who claimed that customers were given advance notice.

The bank has taken decisions on re-KYC on some corporate credit card accounts in line with our commitment to maintain the most compliant environment,” the spokesperson further said.

SBM Bank (India) Ltd is a step-down subsidiary of SBM Holdings Ltd, a listed entity on the Mauritius Stock Exchange, promoted by the Government of Mauritius.

In January this year, SBM Bank came under regulatory scrutiny when the RBI prohibited the lender from processing any currency transfers abroad under the so-called Liberalized Remittance Scheme (LRS) until further orders.

Last year, it had also directed fintech partners to stop taking on new customers following an RBI order related to prepaid instruments.

SBM had become a go-to bank for fintechs and had tied up with more than 44 firms.

According to one of the industry executives who did not wish to be named, “SBM has been in the crosshairs of the RBI for some time now and banned from all LRS transactions when they sent US dollars out for crypto trading. A bigger issue seems to be at play, and instead of fixing their processes they just shut down all the cards under regulatory pressure.”