In an interview with MintGenie, Agarwal said that secured credit cards provide a structured solution, requiring collateral like fixed deposits.
Edited Excerpts:
Can you explain the significance of secured credit in the current financial landscape, especially in light of the RBI’s actions?
In response to the RBI’s recent actions to raise risk weights on personal loans and credit card exposures, secured credit emerges as a crucial component in the financial landscape. With a surge in personal credit witnessed recently, highlighted by increased credit card transactions and loan disbursements, the need for prudence in lending practices is evident.
Secured credit cards provide a structured solution, requiring collateral like fixed deposits (FDs), thereby enhancing the resilience of banks’ portfolios against potential defaults. This approach enables banks to extend credit to a broader segment of the population while safeguarding their interests and promoting inclusivity in access to credit.
Moreover, by promoting responsible lending practices and enhancing credit risk management, secured credit cards contribute to a healthier financial ecosystem. They play a pivotal role in reducing the likelihood of defaults and NPA accumulation, aligning with the RBI’s objectives of creating a robust banking sector and benefiting both banks and consumers.
What are the key features of secured credit cards that are significant for young Indian borrowers?
India has gained the distinction of being the most populous country in the world. However, what’s more interesting is that the working population of India, which includes the 15-64 age group, comprises 68% of the total population. This highlights the potential of India to reap the demographic dividend in the years to come. Given this significant demographic, it becomes crucial to ensure the development of a robust financial environment that caters to the needs of young individuals entering the financial landscape.
Key features of secured credit cards cater specifically to the needs of young Indian borrowers. These cards offer low entry barriers, as they don’t require a high credit score or income proof, making them accessible to a broader segment of the population. For young professionals and students who are new to credit cards, secured credit cards provide an excellent opportunity to build a credit history responsibly while earning interest on the FD deposit.
Moreover, they often come with flexible credit limits and competitive interest rates, making them an attractive option for those seeking to establish a positive credit profile. By leveraging these features, young Indian borrowers can embark on their financial journey with confidence, laying the foundation for a secure financial future.
How can young professionals start building a credit history in the current scenario?
Credit history is crucial for young professionals, as it serves as a cornerstone for their financial future. A positive credit profile not only reflects responsible financial behaviour but also impacts loan approvals and interest rates. Therefore, prioritizing a strong credit history is essential for unlocking various financial opportunities and ensuring long-term financial well-being.
Young professionals can start their credit journey by opting for secured credit cards, ensuring timely payments, and maintaining a low credit utilization ratio. These foundational steps are essential for establishing a positive credit profile. To cultivate a robust credit history, it’s crucial to prioritize timely payments for various financial obligations, including loans, and credit card bills. Regular monitoring of credit reports enables individuals to track their credit utilization, payment history, and overall credit management, facilitating continuous improvement.
Avoiding practices detrimental to credit profiles, such as maintaining high credit utilization ratios or frequent credit applications, is equally crucial. Instead, focusing on expanding financial knowledge, budgeting, and saving alongside credit building lays the groundwork for a stable financial future.
Recently, the Rupay credit card monthly spending crossed ₹10,000 crore, doubling its market share. What are the trends that you see in this context?
Rupay credit cards are spearheading a revolution in India’s payment services. These cards provide cost-effective solutions tailored to the unique needs of the Indian market and hence, the demand for Rupay credit cards has been growing steadily which highlights the increasing popularity of digital payments in the country.
The doubling of Rupay credit card spending reflects a growing trend towards digital transactions and the increasing acceptance of credit cards in everyday purchases, but we have just begun to scratch the surface. There are roughly 3.5-4 crore unique credit card holders in India versus 35-40 crore UPI transactors (almost 10x).
People are slowly realizing that they can use a credit card even on UPI, thereby getting cashback and discounts and getting 45-50 days of the free credit period. We will not be surprised if the number of Rupay credit card holders increases 5-10x in the next five to seven years.
What strategies do you advise individuals to use to manage credit card debt responsibly and use credit cards wisely?
Credit cards serve as valuable tools in effectively managing money, offering convenience and flexibility in transactions. Responsibly managing credit cards not only ensures financial stability but also brings growth to one’s financial portfolio. By prioritizing timely payments, monitoring statements, and maintaining a low credit utilization ratio, individuals can take the benefits of credit cards while avoiding debt traps and cultivating a path toward financial growth. Regular monitoring of statements and setting up payment reminders can help in wise credit card usage. Creating a budget, tracking expenses, and seeking financial education can empower individuals to make informed decisions and avoid debt traps.
How to choose the best credit card for maximum benefits?
Choosing the best credit card involves considering one’s spending habits and lifestyle. Look for cards with rewards and benefits aligned with your preferences, low annual fees, and favourable interest rates. Research and compare multiple options before making a decision. Factors such as customer service quality, additional perks, and redemption options to maximize the benefits offered by the card should also be considered.
Please share some tips for ensuring credit card security in the current situation of OTP and credit card-related scams.
In 2019, a total of 549 cases of OTP fraud were reported across India. However, in 2021, it skyrocketed to 2,028 cases, representing a threefold increase. Amidst the rising instances of OTP scams and credit card-related fraud, it’s essential to adopt smart financial practices to safeguard your money. One crucial aspect of financial management is ensuring the security of your credit cards.
To protect against credit card fraud, individuals should prioritize safeguarding personal information and regularly monitor transactions for any suspicious activity. Additionally, enabling OTP-based authentication for online transactions adds an extra layer of security. It’s crucial to avoid sharing card details over unsecured networks and to remain vigilant against phishing scams that attempt to steal sensitive information.
In addition to these precautions, consider using secure payment methods such as virtual cards or tokenization to further enhance transaction security and mitigate fraud risks effectively. By staying informed about emerging threats and implementing proactive measures, individuals can significantly reduce the risk of falling victim to credit card fraud and ensure the safety of their financial assets.
What is your vision for the future of the credit card industry and how are you contributing to providing a secure lending/credit option for both banks and customers?
The popularity of credit cards in India is on the rise, with the total number hitting the 100 million mark. However, banks continue to pursue the same customers who already possess a credit card, by offering them their second or third credit cards, which results in the overall pool of unique credit card holders not expanding rapidly.
We aim to enable the next 200 million Indians with secured credit irrespective of their socio-economic background and geographical demographics by reaching out to the unserved and the underserved community. With innovative features such as FD-backed credit cards, and digital platforms for easy access, we aims to revolutionize the credit card landscape, ensuring affordability, transparency, and security for all stakeholders.
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Published: 03 Apr 2024, 09:17 AM IST