By Aditya Kalra

NEW DELHI (Reuters) – A senior U.S. trade official privately criticised India’s July decision to ban Mastercard Inc (NYSE:) from issuing new cards, calling it a “draconian” move that caused “panic”, according to U.S. government emails seen by Reuters.

The documents show frustration within the U.S. government after India’s central bank banned https://www.reuters.com/article/india-banking-american-express-idUSL4N2MG3I6 new card issuance by American Express (NYSE:) and Diners Club International in April, then took similar action against Mastercard https://www.reuters.com/world/india/indias-reserve-bank-bans-mastercard-issuing-new-cards-india-2021-07-14 in July.

According to the Reserve Bank of India, these companies are accused of violating local data storage rules. These bans will not impact existing customers.

Mastercard was a major payment network in India and Visa (NYSE:). The US officials exchanged emails to talk about next steps. They also discussed how they could approach the RBI.

On July 16, Brendan A. Lynch (the deputy assistant U.S trade representative for South- and Central Asia), wrote that “We have been hearing from stakeholders regarding some very draconian steps that the RBI took over the last couple of days.” This was two days following the Mastercard announcement.

Lynch wrote that it sounded like other (Amex and Diners) might have been affected by similar actions. He asked his Indian colleagues to contact their central bank contacts in India “to find out what’s happening.”

Lynch and spokespeople from the Office of the U.S. trade Representative as well as the U.S. Embassy New Delhi declined to comment. On the Mastercard ban, no comments have been made by the U.S. government.

The RBI didn’t immediately reply.

A Mastercard spokesperson said to Reuters: “We have had constructive interactions with both the Indian government and the U.S. government over the past weeks, and we appreciate the support from both.” Mastercard is making progress in trying to quickly resolve the issue, as Mastercard had discussions with RBI.

“PANIC”, “FULL COURT PRESS”

Mastercard counts India as a key growth market. It stated that it is “bullish” on India in 2019, a country it made significant investment decisions and has built technology and research centres.

The Mastercard ban rattled https://www.reuters.com/world/india/indias-ban-mastercard-hit-banks-card-operations-income-sources-2021-07-15 the company and upset India’s financial sector as Indian partner banks fear a hit to their income as they struggle to swiftly partner with new networks to offer cards.

Mastercard was found to not be in compliance with 2018 regulations by the RBI, despite “sufficient time and appropriate opportunities”.

After failed lobbying by U.S. companies, the rules, which require foreign card networks in India to keep Indian payment data local for “unfettered supervision access”, were put into effect. This also strained trade relations between New Delhi (India) and Washington.

Mastercard said that it is disappointed by the decision. The company has told Reuters it had submitted an additional audit report https://www.reuters.com/world/india/mastercard-submits-new-audit-india-after-ban-over-data-handling-2021-07-30 to the RBI before the ban took effect on July 22.

Emails from the U.S. government show that there is hope for things to be rectified before this ban takes effect.

Lynch shared one email with colleagues, explaining that the RBI had all of the information they needed and that they were hopeful they would respond accordingly. He wrote, however, that “if the RBI does not change their course, I am sure panic will return.”

He wrote days later that Mastercard continued to “put on the full court presse” in Washington.