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Over the last seven years, gross non-performing assets (NPAs) of public sector banks (PSBs) have doubled¹, going from INR 2.24 trillion in 2014 to INR 5.40 trillion in 2021. As per a Reserve Bank of India (RBI) report², the gross non-performing assets (NPAs) of banks may increase from 6.9% in September 2021 to 8.1% by September 2022 under the baseline scenario and to 9.5% under a severe stress scenario. The problem of NPAs in the Indian banking sector needs to be addressed in a comprehensive manner.

There are several reasons for the high rate of NPAs in Indian banking sector including high delinquencies in priority sectors such as housing, education and agriculture, poor economic decisions by borrowers, inadequate credit appraisal and due diligence, deficient security lack of oversight of the loans, and frauds by borrowers.

The Government of India has initiated several measures to reduce the burden of NPAs in the Indian banking sector such as the formation of Asset Reconstruction Companies (ARCs) that take on stressed assets from banks, recapitalisation of banks, merging weak banks with stronger banks and so on. New laws such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, also known as SARFESI Act and Insolvency and Bankruptcy Act, 2016 have also had an impact.

Banks and other non-banking finance companies are also doing their bit to minimize their losses by taking over securities, restructuring loans, focusing on recoveries, selling stressed assets to ARCs, and pursuing legal remedies as required.

Leveraging Technology to Streamline Collections

Most of the measures mentioned above are reactive in nature, i.e. they are focused on reducing NPAs once the loans have already been recognized as NPAs. However, avoiding or minimizing NPAs requires concerted efforts across the entire loan lifecycle.

Loan collection is a very important area where a focused, agile and data-oriented approach supported by a comprehensive and unified collections capability can make a lot of difference.

Streamlined collections processes, effective tracking of performance and aligning the strategies can go a long way in reducing NPAs. Role of technology in reducing non-performing assets is very significant. Some approaches that can help are:

A unified platform for end-to-end visibility

A unified platform that consolidates all relevant data in a single place and provides much-needed visibility and analytics support can help in identification of customer behaviour patterns and trends thereby, enabling better decisions. For instance, Credgenics platform comes with end-to-end capabilities for loan collections from pre-due stage to early delinquency and late stage delinquency to litigation cases. A single platform catering to multiple communication channels in a synchronised and well planned manner not only improves the effectiveness dramatically but also simplifies the  management of cases.

An integrated approach to collections with the strategies readily adapted to the outcomes in real-time provides a win-win situation for both the lenders and the end customers.

Automation to simplify and standardize communication

Despite tremendous progress in digitization in banking aimed towards automation in banking, there are still numerous manual or awkward customer touch points in collections that are tedious, time-intensive and unproductive.

Automating collections related communications by adopting a standardized and personalized template-based approach can prove extremely valuable

In fact, digitizing every manual touchpoint with Credgenics can also help provide interesting insights into each customer’s transactions with the bank.  In addition, automated triggers can not only flag alerts for potential problems in collections but also keep the customers informed as per their preferences. We have also been working to embed predictive analytics into the loan platform to help detect early signs of stress and enabling proactive measures as defined by the lenders.

Customer centricity at the Core

Engaging with customers via the mode of communication that they are comfortable with whether electronic, voice or others can help streamline collection efforts. The days of one-fits-all mechanised outreach are over and today’s customers expect an intelligent, tailored and responsive approach to communications. This is possible with smart technology platforms that come with multi-channel, multi-lingual capabilities, the intelligence to comprehend and adapt to the outcomes in real-time.

Behavioural  segmentation and Predictive Analytics

Risky customer segments need to be approached with the most effective collections strategies. Lenders realize that common approaches do not work for many customers—often enough as lenders cannot even get these borrowers on the call, or agents alone are unable to convince them to repay their debts. Clearly, we can see that one strategy fits all doesn’t work and innovative approaches are required.

The place to begin is behavioural segmentation, that uses psychological insights derived from responses towards collection activities, payment history and loan details to build a closer profile of customers segmented into different risk profiles. Combining behavioural segmented customer profiles and predictive analytics such as intent to pay, channel and time to contact, can help improve the success rates.

Effective controls and tracking

Many times, there are a lot of overlaps and inefficiencies in collections processes due to a lack of visibility at a central level and the inability to track where things are exactly not working as desired. This leads to wastage of efforts, missing focus, and overall poor productivity. However, new-age technology platforms such as Credgenics provide complete visibility through comprehensive dashboards and analytics at a granular level in real-time. With the desired controls built-in as part of processes, any deviations can be monitored and rectified very quickly to ensure intelligent and automated processes to deliver the desired outcomes effectively.

As mentioned earlier, it is difficult to attribute NPAs to a specific approach or cause. Hence, the solutions to mitigate and prevent NPAs in the Indian banking sector would also need to be holistic and span organization-wide.

Collections is a great starting point to explore and fine-tune the evolving strategies for not only minimizing fresh NPAs but also reducing the existing ones.

Credgenics is an advanced debt recovery SaaS-based software platform for banks and other non-banking lenders to digitize and automate their end-to-end loan collections.

  1. The Times of India: Gross NPAs of public sector banks double in last seven years, SBI tops list
  2. Mint: Banks’ NPAs may rise to 9.5% by September 2022 in worst-case scenario: RBI

Author- Anand Agrawal- Co-Founder & CTO, Creddgenics

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