Deposit-Backed Credit Cards

Banks in partnership with fintechs are introducing secured credit cards backed by customer deposits, targeting first-time borrowers and financially underserved sections.

What are Deposit-Backed Credit Cards (Secured Credit Cards)?

A Deposit-Backed Credit Card, also known as a Secured Credit Card, is a type of credit card where the cardholder provides a fixed deposit (FD) as collateral with the issuing bank. The credit limit of the card is usually equal to or slightly less than the deposited amount.

These cards are primarily designed for:

• Individuals who are new to credit (no prior credit history).
• Those who have a low credit score or past credit challenges

Example:

• Customer: Ramesh, new to credit.
• FD with Bank: ₹50,000 at 6% interest.
• Credit Card Limit: ₹50,000 (secured against FD).
• Usage: Shops online for ₹10,000 and pays full bill on time.
• Benefits:
  • FD continues earning interest.
  • Builds credit score.
  • Can be upgraded to an unsecured card after 12 months.

RBI / Regulatory Perspective

• RBI categorizes deposit-backed credit cards as secured credit cards.
• Banks must report usage and repayment activity to credit bureaus.
• In case of default, banks can adjust the outstanding amount from the FD.