Smaller Public-Sector Banks Explore Partnerships With Larger Peers to Expand Credit-Card Businesses
India’s smaller public-sector banks are exploring partnerships with larger state-owned lenders to expand their credit-card businesses, potentially allowing them to access established technology, distribution and card-management capabilities without independently building every component required to compete at scale.
The proposed strategy includes co-branded credit cards between public-sector banks, greater cross-selling to existing customers, digital onboarding, data-led customer acquisition and specialised cards for micro, small and medium enterprises.
The proposals emerged from discussions on “Reimagining the Credit Card Business” at PSB Confluence 2026, where public-sector banking leaders examined how state-owned lenders can strengthen their position in a fast-growing but highly concentrated segment of Indian financial services.
The initiative comes as India’s credit-card market has expanded beyond 119 million cards, while a relatively small group of major issuers continues to account for a substantial share of cards and spending.
For smaller PSBs, partnerships could provide a faster route to scale while allowing the wider public-sector banking system to use its enormous customer base more effectively.
Smaller PSBs Could Partner Larger State-Owned Banks
Under the strategy being considered, smaller public-sector banks could collaborate with larger peers that already possess established credit-card capabilities.
The partnerships could involve issuing:
co-branded credit cards.
Rather than every lender investing independently in a complete credit-card ecosystem, participating banks could combine their respective strengths.
A smaller lender may contribute its customer relationships, branch network and regional presence.
A larger partner could provide established card infrastructure, technology, product expertise and distribution capabilities.
The model could reduce duplication while accelerating the ability of smaller banks to introduce competitive card products.
PSB Confluence Puts Credit Cards on Strategic Agenda
The proposals follow discussions at PSB Confluence 2026, organised by the Department of Financial Services under the Ministry of Finance.
The two-day event brought together public-sector banks, public financial institutions, senior government officials and industry experts.
One of the central themes was:
Reimagining the Credit Card Business.
The discussions examined opportunities involving digital onboarding, cross-selling to existing customers and the growing integration between RuPay credit cards and UPI.
The broader objective is to help public-sector lenders strengthen competitiveness as customer behaviour and payments technology continue to evolve.
Credit Cards Are Becoming Strategically Important for Banks
Credit cards represent more than a payments product.
For banks, they can create an ongoing relationship with customers through:
payments,
short-term credit,
rewards,
merchant offers,
travel benefits,
digital engagement,
and transaction data.
They can also generate multiple sources of income, including interchange revenue, fees and interest income from revolving balances.
A strong credit-card franchise can therefore help banks deepen relationships with existing customers while creating additional fee-based revenue streams.
This makes the segment strategically important as lenders seek to diversify beyond conventional deposit and loan products.
India’s Credit-Card Market Has Crossed 119 Million Cards
The opportunity is supported by the rapid expansion of India’s credit-card ecosystem.
The number of cards in circulation crossed 119 million in March 2026.
However, the market remains concentrated.
Major issuers such as HDFC Bank, SBI Cards, ICICI Bank and Axis Bank account for a large proportion of the industry.
This creates a challenge for smaller public-sector lenders.
They may possess millions of existing banking customers but lack the scale, technology or specialised card operations necessary to convert those relationships into a significant credit-card portfolio.
Partnerships with larger peers could help close that gap.
Public-Sector Banks Have an Enormous Customer Base
The biggest potential advantage available to PSBs is their existing distribution network.
State-owned banks collectively serve customers across:
metropolitan cities,
smaller urban centres,
semi-urban markets,
rural areas,
government employees,
pensioners,
MSMEs,
self-employed customers,
and salaried households.
This creates a substantial pool of potential credit-card users.
The challenge is identifying which customers are appropriate for particular products and converting those relationships into active card usage.
A partnership model could allow smaller banks to monetise their existing customer base more effectively without having to recreate the sophisticated infrastructure already available elsewhere within the public-sector banking ecosystem.
Cross-Selling Could Become a Major Growth Engine
One of the strategies discussed is systematic cross-selling.
Banks already hold extensive information about customers with whom they maintain:
salary accounts,
current accounts,
savings accounts,
loans,
fixed deposits,
and business banking relationships.
This can help lenders identify customers who may be suitable for pre-approved or pre-qualified credit cards.
A customer with a long-standing banking relationship may be easier to assess than an entirely new borrower.
Cross-selling could therefore lower customer-acquisition costs while allowing PSBs to expand their card portfolios through relationships they already possess.
Transaction Data Could Improve Customer Targeting
PSBs are also examining more sophisticated use of transaction data.
Data generated through UPI and Goods and Services Tax transactions could potentially help banks develop differentiated card propositions for eligible customers.
For retail customers, spending patterns can provide insight into categories such as:
travel,
fuel,
groceries,
online shopping,
entertainment,
and dining.
Banks could use these patterns to design rewards and benefits around actual customer behaviour.
For businesses, GST-linked information can potentially provide additional insight into commercial activity and transaction flows.
The objective is to move away from a one-size-fits-all card strategy toward more segmented offerings.
Digital Onboarding Could Reduce Acquisition Friction
End-to-end digital onboarding is another priority.
Traditional credit-card acquisition can involve documentation, physical verification and multiple stages of processing.
Digital systems can simplify this journey.
For existing customers whose identity and banking information are already available, the process can potentially become significantly faster.
A streamlined journey could allow an eligible customer to:
receive an offer,
review card benefits,
complete verification,
accept terms,
and activate the product
through digital channels.
Reducing friction is particularly important when competing against private-sector banks and fintech-led distribution platforms that have made rapid onboarding a core part of their customer proposition.
RuPay-UPI Integration Creates a Major Opportunity
The ability to link eligible RuPay credit cards with UPI has changed the potential use case for credit cards in India.
Traditionally, credit-card acceptance depended heavily on physical point-of-sale terminals or online card-payment infrastructure.
UPI has a much broader merchant footprint.
Linking RuPay credit cards with UPI allows eligible users to make credit-backed payments at supported merchant UPI acceptance points.
For PSBs, this creates an important opportunity.
Banks with strong RuPay portfolios can potentially combine the convenience and familiarity of UPI with the revolving-credit functionality of a credit card.
This could make credit cards relevant to a wider range of everyday transactions.
Dedicated Business Cards Could Target MSMEs
The strategy is not limited to retail consumers.
Public-sector banks are also considering dedicated business credit cards for MSMEs and self-employed customers.
India has a vast base of small businesses that regularly incur expenses for:
inventory,
travel,
fuel,
digital advertising,
business services,
procurement,
subscriptions,
and employee spending.
Many of these expenses are currently handled through bank transfers, debit cards or personal payment instruments.
A dedicated business card can help separate personal and commercial spending while providing businesses with short-duration working capital and more structured expense management.
MSME Relationships Give PSBs a Natural Distribution Channel
Public-sector banks already play a major role in financing India's MSME sector.
That gives them an established base from which to cross-sell business cards.
An MSME borrower with an existing current account, working-capital facility or term loan may already have a significant banking history.
Rather than acquiring such customers through expensive external marketing, banks can potentially offer business cards directly within the existing relationship.
This could deepen customer engagement while increasing the number of products used by each business.
Financial Literacy May Be Built Into Card Activation
Expansion also brings consumer-protection responsibilities.
First-time credit-card users may not always understand concepts such as:
billing cycles,
minimum amounts due,
interest charges,
late-payment fees,
credit utilisation,
cash-withdrawal charges,
and repayment deadlines.
Public-sector banks are therefore considering stronger financial-literacy measures before card activation.
One proposal involves short educational videos in regional languages explaining essential terms and responsible card usage.
This could be particularly important as banks expand credit-card access beyond customers already familiar with unsecured revolving credit.
Responsible Underwriting Remains Essential
Rapid card issuance can create risks if customer acquisition becomes more important than credit quality.
Credit cards are unsecured lending products.
Banks therefore need robust systems for:
income assessment,
credit scoring,
fraud prevention,
limit management,
repayment monitoring,
and early identification of stress.
The PSB strategy places importance on responsible underwriting and customer protection alongside expansion.
This balance will be critical if public-sector lenders significantly increase issuance among first-time users.
Artificial Intelligence Could Strengthen Fraud Detection
Technology investment is also expected to play an important role in the next phase of PSB card expansion.
Artificial intelligence can potentially assist banks in identifying unusual transaction behaviour.
A sudden change in:
location,
merchant category,
transaction frequency,
device,
or spending amount
can be evaluated against historical patterns.
More sophisticated fraud-detection systems can improve security while reducing unnecessary transaction declines for legitimate users.
AI can also potentially support personalised offers and customer-service automation.
Partnerships Could Reduce Technology Duplication
Building a competitive credit-card business requires significant investment.
Banks need systems for:
card issuance,
transaction authorisation,
billing,
rewards,
fraud monitoring,
customer service,
collections,
risk management,
and regulatory compliance.
For a smaller bank, developing all these capabilities independently may not always be economically efficient.
Partnerships create an alternative.
Instead of duplicating infrastructure across multiple public-sector institutions, smaller lenders could potentially use capabilities that already exist within the wider PSB ecosystem.
That could reduce costs and accelerate product launches.
Public-Sector Banks Are Competing With Powerful Private Issuers
The urgency behind the strategy reflects the competitive structure of the industry.
Private-sector banks have built sophisticated credit-card franchises supported by:
digital customer acquisition,
premium rewards,
travel benefits,
co-branded partnerships,
merchant offers,
data analytics,
and mobile applications.
Several fintech partnerships have also demonstrated how smaller lenders can rapidly expand card issuance when technology and distribution capabilities are combined effectively.
Public-sector banks therefore need to compete not merely on card availability but on the complete customer experience.
Premium Customers Are Another Target Segment
PSBs are also examining opportunities in premium credit cards.
Higher-income customers often seek benefits beyond basic payment functionality.
These can include:
airport lounge access,
travel rewards,
hotel benefits,
concierge services,
premium dining offers,
insurance,
and accelerated reward points.
Premium cards can generate higher spending per customer and strengthen relationships with affluent banking clients.
For PSBs serving high-income salary, business and wealth-management customers, this represents an opportunity to retain more financial activity within their own ecosystem.
Credit Cards Can Deepen Customer Relationships
The strategic value of card expansion extends beyond immediate revenue.
Every card transaction creates another interaction between the customer and the bank.
Frequent engagement can improve customer retention and create opportunities to offer additional products.
A cardholder may eventually use the same institution for:
personal loans,
home loans,
investments,
insurance,
wealth products,
or business financing.
Credit cards can therefore become part of a broader customer-lifecycle strategy rather than functioning as an isolated payment product.
Collaboration Could Create a New PSB Operating Model
The proposed partnerships also point toward a broader change in how India's public-sector banks approach competition.
Historically, each bank has largely built and distributed products under its own infrastructure.
A more collaborative model could allow institutions to share capabilities where scale matters while retaining their individual banking relationships and brands.
Credit cards could become an important test case for this approach.
If successful, the model may demonstrate how public-sector institutions can combine technology, distribution and customer bases without requiring every bank to build identical infrastructure independently.
Conclusion
Smaller public-sector banks are exploring partnerships with larger state-owned peers as India’s PSBs seek to build a stronger presence in the rapidly expanding credit-card market.
The proposed strategy could include co-branded cards, shared capabilities, digital onboarding, data-driven customer acquisition, RuPay-UPI integration and specialised business cards for MSMEs.
For smaller lenders, collaboration offers a potentially faster and more capital-efficient route into a business where technology, scale and customer experience are increasingly critical.
The opportunity is substantial because public-sector banks already possess extensive customer relationships across retail, salaried, business and regional markets.
The next challenge will be converting that reach into active credit-card usage while maintaining responsible underwriting and customer protection.
If implemented effectively, partnerships between PSBs could allow the public-sector banking system to compete more aggressively in one of India’s most important consumer-payment and unsecured-credit markets.