MUMBAI: Banks and non-banking financing companies (NBFCs) are looking at strategies to tackle the biggest loan collection challenge they will face in the coming months following the exit from the lockdown.
Financial institutions are drawing up plans to trace down low-ticket borrowers and other consumer loan borrowers once the lockdown and the accompanying loan moratorium is completely lifted, with many repurposing existing staff, a large portion of has been idle given sluggish business environment.
State Bank of India, the country’s largest lender, for instance is exploring a tie-up with the Department of Post to reach out to the bank’s customers spread across the country. The bank is also looking to divert its business correspondents for collection purposes for agriculture loans.
SBI has nearly 60,000 business correspondents which are used for account opening, remittances and other basic banking operations. The bank has already done a pilot in Maharashtra and is looking to extend this across the country.
“There is a need to have a mechanism in place to improve collection efficiency and also sensitise borrowers to repay on time. As of now collections are done through branches. It’s time that we engage with more business correspondents in this way so that there is a regular cash flow coming and accounts don’t go into stress,” said a senior SBI official.
Bajaj Finance Ltd, one India’s largest non bank lender, is looking to augment its collection capacity. In its earnings call, the management said it has used the last 60 days to boost 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.
Bajaj Finance has 27% of its loan book under the three-month moratorium of which 70% loans have no recent bounce history, meaning these did not default in January, February and March. The auto finance business of the company has the highest percentage of loans under moratorium at 70% or ₹9,611 crore. The company said around 40% of auto finance business comes from direct cash collection (DCC) mode. Due to the lockdown and the inability of customers to pay by cash, the bounce rate of this portfolio has increased from an average of 19% in January, February, March to about 86% in April and May.
According to a report by brokerage firm Sanford C Bernstein on 16 April, feedback from collection teams and collection agents hinted at 20%+ initial bounce rates. It said private banks and NBFCs’ initial attempts to offer ‘Opt-in’ moratorium vs ‘out-out’ offered by state owned banks confused retail borrowers.
Among financial institutions, fintech players could be hit the most as loan losses are expected to shoot up by as much as three times in the unsecured retail loan space. According to a report by credit scoring firm CreditVidya, losses are forecast 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 and paydays are going to be the highest risk.
Credit scoring firms have warned that fintech, NBFCs, and small finance banks with exposures to mass market segment with an average loan amount of ₹25,000 and average savings of ₹4,000 need to be wary of bad loan build-up in this segment. These customers have seen a sharp drop in income and are unlikely to fulfil EMI obligations beyond two months.