Rising non-performing loans (15 per cent in some cases) have forced several banks to issue credit cards linked to fixed deposits (FDs).

This not only secures the lending, but also allows banks to issue a credit card to a person who is otherwise not eligible.

In this scheme, banks ask applicants to open an FD account with a minimum amount and an auto-renewal facility. The credit limit on the card is pegged at 85 per cent of the FD amount.

The depositor can only withdraw interest as the bank marks a lien on the entire fixed deposit amount. If the cardholder fails to pay the outstanding amount on the credit card within 90 days, the bank has the right to liquidate the FD and set off the credit card charges against it.

What do you guys think of this scheme? I will rather settle for debit cards if I am being forced to open fixed deposits first.