Credit expansion - Banks, fintech bet on FD-backed cards; low limit offers gain ...

Security and flexibility in one product

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Brand Connect
Last Updated: Dec 29, 2025, 16:36 IST5 min
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In a bid to widen credit access while managing risk, banks and fintechs are increasingly rolling out fixed deposit (FD)-backed credit cards and credit offers with modest limits. This credit expansion strategy allows institutions to onboard new customers, especially those without strong credit profiles while anchoring limits to underlying savings. The momentum behind these instruments is growing, and they may well define the next phase of digital credit growth.

Why FD-Backed and Low-Limit Cards Are Gaining Traction

1. Reducing underwriting risk

Getting a credit card becomes much easier when it’s linked to your Fixed Deposit (FD). In this setup, the bank uses your FD as security, which greatly reduces its risk. That’s why even customers without a strong credit history or income documents can qualify for it. For instance, IDFC FIRST Bank offers FD-backed credit cards where your FD acts as the guarantee. You can get up to 100% of the FD value as your credit limit.

2. Enabling credit inclusion

Many potential users like students, homemakers, fresh graduates, gig workers, face barriers in the traditional credit system owing to limited credit data or income documentation. FD-backed cards open a pathway for these segments to apply for a credit card, build a credit score, and access financial flexibility.

3. Controlled exposure via low limits

Rather than offering large lines of credit immediately, institutions often begin with low credit limits to manage exposure. IDFC FIRST Bank’s secured card options help customers develop disciplined usage habits and responsible repayment behaviour before scaling up their credit limits. This limits exposure and helps customers develop discipline in usage before being scaled up. It is a cautious, incremental credit expansion model.

4. Dual benefit: earning on FD plus credit

What makes FD-backed cards attractive is that the FD still earns interest while serving as security. Users thus derive benefit both from their savings and also gain the flexibility to make a credit card purchase when needed, subject to the sanctioned limit.

5. Marketing differentiation and customer acquisition

Offering a secured card with minimal documentation and guaranteed approval becomes a differentiator in a crowded credit card market. It becomes a tool not just for credit extension but also for customer acquisition and long-term engagement.

How FD-Backed Credit Cards Work: Key Mechanics

  • The customer opens a fixed deposit with the issuing institution, often earmarking it for the card.
  • The bank issues a credit card (often a secured variant) whose credit limit is linked to the FD value sometimes up to 100% or a fixed percentage of the deposit.
  • The FD remains on lien until the credit card is closed or fully settled.
  • Users can carry out credit card purchase transactions up to the approved limit.
  • Interest on the FD accrues normally. Meanwhile, card dues must be paid on schedule; in case of default, the bank may draw from the FD if contractually allowed.
Because of this structure, credit underwriting becomes much simpler. No or minimal credit checks may be required, and income proof may be waived, especially in more inclusive variants.

Advantages, Challenges, and Considerations for Users

Advantages for users

  • Guaranteed approval or higher probability: Unlike for the unsecured variant, credit checks or income verification may be minimal or skipped.
  • Credit building: Responsible use (making a credit card purchase and paying dues on time) helps build or strengthen credit profile.
  • Earnings retained: The FD continues to yield interest, unlike a debit or blocked balance.
  • Lower interest or safer structure: Since the card is secured, the lender’s risk is lower, which can translate into more favourable terms or lower fees.

Key challenges and caveats

  • Liquidity lock-in: The FD used as collateral may not be accessible until the card is closed or dues are cleared.
  • Cap on leverage: The credit limit is inherently pegged to the FD value, which may restrict flexibility.
  • Costs and fees: Though secured, the card may still carry interest, processing, or default fees—users must check the terms carefully.

How to Apply for an FD-Backed Credit Card and Get Quick, Guaranteed Issuance 

If you’re considering applying for such a card, here is a step-by-step approach you can follow:
  1. Link or open a fixed deposit with the issuing bank, at or above the minimum qualifying amount.
  2. Navigate to the credit card section in the bank’s portal or app and pick the secured/FD-backed credit card option.
  3. Complete the application by creating your fixed deposit, performing KYC, selecting card variant, and accepting terms.
  4. Approval and issuance in many cases the card (physical or virtual) is issued promptly given all the requirements are fulfilled.
  5. Once live, you can begin making credit card purchase transactions up to the sanctioned limit.
In IDFC FIRST Bank’s case, for instance, customers can apply for the FD-backed credit card completely online. Because the FD backs the card, there is no requirement for income documentation or credit history.

Outlook and Strategic Imperatives

The rise of FD-backed and low-limit credit offerings is more than a niche play, it signals a broader shift in how credit will be extended in a digital, inclusive economy. As banks and fintechs seek to balance growth with prudence, these hybrid products offer a bridge: onboarding newer customers, managing risk, and potentially converting them into full-fledged credit clients over time.

To succeed, providers must:

  • Ensure transparent disclosures of fee structures, lien handling, default rules, and risk.
  • Offer scalable paths, i.e. allow credit limit increments or transitions to unsecured cards based on good behaviour.
  • Integrate with digital payments ecosystems (for instance enabling UPI or QR acceptance) to expand utility.
  • Build education and credit literacy supports so that user behaviour doesn’t lead to overextension or misuse.
From the user’s perspective, these cards are more than stopgaps, they can be genuine stepping stones in building credit standing, managing occasional high-value purchases, and helping temper financial instability. As you decide to apply for a credit card, it is worth exploring if such secured or FD-backed options exist in your banking ecosystem.

In summary, linking credit cards to fixed deposits and offering measured credit limits is helping banks expand credit in a safe, controlled, and more inclusive way. For many consumers, this may be an ideal entry point into the credit world, allowing both security and flexibility in one product.

The pages slugged ‘Brand Connect’ are equivalent to advertisements and are not written and produced by Forbes India journalists.

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First Published: Dec 29, 2025, 16:47

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The pages slugged ‘Brand Connect’ are equivalent to advertisements and are not written and produced by Forbes India journalists
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