With delinquencies hitting hard on the banks' books, lenders have decided to issue credit cards linked to fixed deposits. It has been mandatory for customers of some banks to start a fixed deposit with the lender in order to avail a credit card.
For instance the largest credit card issuer, ICICI Bank has put in a condition to open a fixed deposit with the bank under the scheme named Fixed Deposit Instant Credit Card in order to get a credit card issued. This rule has been valid for applicants who do not meet the eligibility criteria of the bank.
The third largest private lender, Axis Bank has also launched a similar scheme while some other banks said that even they had such a product in their portfolio but they were not insisting on it. HSBC head of credit cards, Ravi Subramanian said such a product enables a bank to protect its lending along with issuing a card to a person who would not be able to get a card due to his non-eligibility.
The scheme requires a credit card applicant to open an FD account with an auto-renewal facility. The bank would issue the card with 85% limit of the FD. The minimum and maximum limits for the FD are Rs 20,000 and Rs 3 lakh respectively. Here the bank will lock the entire FD amount as long as the card is held by the person. The cardholder cannot break the FD till the time he has the card. During this period, card holder can only withdraw the interest earned on the FD.
Further if the cardholder is not able to clear the credit card outstanding within 90 days from the date of statement, the bank holds a right to cash the FD for clearing the debt.
However some banks did not approve such a scheme as they thought customers would not prefer to earn just 8-9% on FD and pay 50% on cards. A foreign bank head of credit cards said that customers would rather prefer an overdraft facility than FDs where high rate of interest has be to be paid on cards.
"Many banks are toying with this idea with a view to expanding their credit card base. But it makes sense only for low-end customers," he said.
The economic slowdown that has made the situations worse for banks has also tapped individuals who have faced job losses resulting in defaults and thereby prompting banks to take such moves.