Banks and non-banking financial companies in India are mapping new strategies as they prepare for the challenge of recovering their retail loans amid widespread disruptions to household incomes from the coronavirus crisis.
Most of these financial institutions are repurposing existing workforces to pursue their low-ticket borrowers once the lockdown measures and the six-month moratorium on loan repayments are lifted.
State Bank of India (SBI), the country’s top lender, for instance, is exploring a tie-up with the Department of Posts to reach out to the bank’s massive customer base. SBI is also looking to divert its business correspondents for collection of farm loans, according to a senior bank official.
Currently, SBI has nearly 60,000 business correspondents who help with opening accounts, remittances and other basic banking operations. The bank has already done a pilot project in Maharashtra, and is looking to extend this nationwide. “There is a need to have a mechanism in place to improve collection efficiency and also sensitize borrowers to repay on time. As of now, collections are done through branches. It’s time we engage with more business correspondents in this way so that there is a regular cash flow and accounts don’t go into stress,” said a senior bank official, who requested anonymity.
Bajaj Finance Ltd, one of the country’s largest non-bank lenders, is also looking to augment its collection capacity. In its earnings call on 19 May. the management said it has used the past two months to bolster its collection capacity.
“We are adding close to 2,800 officers in the company to this activity,” Rajeev Jain, managing director and chief executive officer said.
Owing to the lockdown and the inability of customers to pay by cash, the bounce rate of this portfolio has surged from an average of 19% in January, February and March to about 86% in April and May.
“Most borrowers, having realized that the moratorium does not waive interest and therefore would add to their interest outgo, are inclined to continue with their existing repayment arrangements. As new customer acquisition was not possible, we redeployed our staff to focus more on collections,” said V.P. Nandakumar, managing director and CEO, Manappuram Finance.
Brokerage Sanford C Bernstein said in a 16 April report that feedback from collection teams and collection agents have hinted at more than 20% initial bounce rates. It said initial attempts by private banks and NBFCs to offer ‘opt-in’ moratorium versus ‘opt-out’ offered by state-run banks confused retail borrowers.
Among financial institutions, fintech companies could be hit the most as their loan losses are expected to jump by as much as three times in the unsecured retail loan space. According to a report by credit scoring firm CreditVidya, losses are predicted to increase due to loan stacking or the practice of the same borrower having multiple outstanding loans from different lenders.
The report said customers who have taken digital personal loans are going to be the highest risk category. Credit scoring firms warned fintech, NBFCs and small finance banks having exposure to the mass-market segment with an average loan amount of ₹25,000 and average savings of ₹4,000 need to be wary of the bad loan build-up in this segment. These customers have seen a sharp drop in income and are unlikely to fulfil their obligations of paying monthly instalments beyond two months, the report said.
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