The rising delinquency rate and economic slowdown is prompting banks to tap the savings accounts of customers who have outstanding credit card bills. Banks rarely exercise this practice but the current scenario is pushing them to do so.

Initially the banks try to cover the credit card debt through various other options like negotiating with customers and giving them extra time to pay. However the rising defaults have raised concern amongst the issuers and therefore they have taken a hit over the savings account of the customers. In fact some banks have agreements with cardholders that state that banks have the right to tap into the savings accounts of the customers in case of overdue credit card debt.

A customer of HDFC Bank says that recently his savings accounts with the bank have been debited with Rs 72,000 to set off dues against his credit card. The customer however said that his debt was under dispute and bank should have intimated him before deducting the amount. "Had I issued a cheque for an amount higher than the balance in my savings account, which would have been legally liable if it had been dishonoured?" he questioned.

On the other hand, a spokesperson from HDFC Bank said that a notice was given to the customers before debiting his savings account. He further said, "Banks have every right to exercise the ‘Right to Lien' at any point in time, even without notice, if it has exhausted all options of making the customer pay for his credit card dues. These include reminders and notices. The card member agreement says this clearly."

Many banks in the industry have a ‘Right to Lien' clause in credit card agreements with customers. "When a credit card is issued based on an existing savings account relationship with the customer, both agreements are in sync as individually both agreements have a clause which asserts the bank's right to set off in case of a default. More specifically, the customer provides consent to this clause in the application," said a spokesman from Citibank.

An official with a wholly-owned subsidiary of Bank of Baroda (BOB), BOB Cards, said that issuers are not allowed to invade the savings account of the customer without his permission because they are separate entities.

The largest credit card issuers in the country, State Bank of India and ICICI Bank did not comment on the issue.

In the past year, overall default rates have increased by 2% and reached 10% to 12% of the turnover, reported Credit Card Management Consultancy (CCMC), a firm that tracks the credit card industry in India.

CCMC Director, Vijay Mehta said, "The ongoing credit crisis has prompted banks to take a cautious approach as far as unsecured lending is concerned and the situation is likely to become even more grim by the end of the next fiscal."

The credit card defaults in the country have been rising due to the global financial crisis that created a liquidity crunch in the economy.