Secured credit cards tapping into low credit score-holder market

The secured credit card made its entry on India’s shores in 2007 and was launched to target people who had passed the time when they could avail of a credit card. To get a credit card, customers need to earn a minimum amount of salary annually and also have a decent credit score. This makes it difficult for people with low or no credit score and low salaries to get a credit card. Customers with low/no credit score and salary can now easily get a secured credit card.

A secured credit card is given by banks against fixed deposit. ICICI, SBI, Axis, etc, are some of the banks that offer credit cards against fixed deposit in India. When customers apply for such cards, all the other factors that lead to the approval of a card become insignificant because card providers are given a collateral security. This security ensures them that they will get the money they provide as credit back. The credit limit of the customers in this case is decided based on the amount of fixed deposit they have.

Vishwavijay Sikarwar, VP- Regional Area Heads office, Kotak Mahindra Bank said for salaried class the cut off is 60 and for those who have a business, it is 65. Many people fall outside the parameters set and if they have a fixed deposit, he or she is given a limit up to 80% of the amount. The party is not allowed to break the fixed deposit while he has a card against it.” 

Banks do not give credit cards to NRI’s but this card could be given to them. This product was essentially launched to plug a gap in the market. 

Mr Sikarwar said “To apply for this type of card, you do not need to submit a lot of documents. The minimum tenure of the fixed deposit that you are giving as security to the bank should be 6 months. Generally, banks offer an interest free period of 48 days to 55 days on such cards. Cardholders will continue earning interest on their fixed deposit.”

He went on to say that when one took a secured credit card against fixed deposit (FD), it would not affect the FD and one will continue to keep earning interest on it. The rate of interest earned will be the same the bank had set when the FD account was opened. 

Raja Mukherjee another banker said “The impact of the credit card will be seen at the time of bill payment. In case of you default on your card payment, the bank will adjust the outstanding amount against your FD account. So, if you want to not hurt your investment, you will have to make sure that you always pay your credit card bills on time. People who opt for a credit card against fixed deposit primarily to build their credit score will face a problem if they default on their repayment. In such a case, not only will their FD be affected, but it will also have a negative impact on their credit score. Apart from this, in case of financial emergencies, you do not have to pre-close your FD account immediately, instead you can use your secured credit card to make the payment. As banks offer sufficient time in the form of interest free credit period to cardholders, they get time to repay the bills”.

Some of the banks that offer credit card against fixed deposits in India are ICICI Bank, State Bank of India, Axis Bank, Kotak Mahindra Bank, Central Bank of India and Bank of Baroda. The ICICI Bank Coral Credit card against fixed deposit is offered to customers without any income related documents. The SBI Advantage Plus Card is issued against fixed deposits by the State Bank of India. 

The maximum cash withdrawal limit on this card is 100% of the credit limit. The Axis Bank Insta Easy Credit Card is issued by the bank against fixed deposits. The credit limit on this card is up to 80% of the FD amount. The Central Bank of India Aspire Credit Card guarantees credit limit up to 80% of the fixed deposit amount. Interest charged per month on this credit card is 1.20%. The Kotak Mahindra Bank Aqua Gold Card is issued against fixed deposits by Kotak Mahindra Bank. The minimum deposit that is to be made in the fixed deposit account is Rs 25,000 and cardholders can avail a credit limit of up to 80% of the fixed deposit amount. The Bank of Baroda Assure Credit Card is an international Visa card that is offered against fixed deposit. The credit limit on this is card is 80% of the fixed deposit amount.

This product has not been aggressively pushed by the banks. Not all banks Mr Sikarwar said focus on all products. Standard Chartered made money on credit cards but Kotak Mahindra Bank not. The banking sector he said had these products but would not pay great focus on the. The money earned was not substantial and not many people availed of such products. At Kotak Mahindra Bank in Goa with everyone with a savings account assured of such a product, it was a tiny number that took it. The same he said would be true in other banks that had the card. Maybe he felt it was the poor monies earned on such products that made the poor cousins. 

Perhaps in time it will change but not now.