In August 2022, the Reserve Bank of India said that banks, non-banking financial companies, cooperative banks, housing finance and asset reconstruction companies should ensure recovery agents desist from publicly humiliating borrowers or send inappropriate messages on mobile or through social media.
The directive came soon after the uncovering of a Chinese loan app scam, where culprits set up an illegal call centre to call victims and extort money from them, threatening to reveal their liabilities to their friends, family and colleagues.
Just goes to show that illegal and predatory debt recovery practices are still very much a problem in India - in large part due to continued reliance on human-led recovery practices, involving phone calls, emails, and even home visits.
Not only are they predatory, but they’re also not effective - as proven by the fact that India’s banking system has seen a steady struggle with non-performing assets (NPAs) since 2011.
It’s no wonder then that several lenders are pivoting away from this approach, instead choosing to leverage state-of-the-art, digital collections systems that rely on data analytics. In fact, a McKinsey report published in early 2020 indicated that debt recoveries increased by an average of 65% across the board when lenders and debt collectors shifted their focus on using digital collection suites.
Improving debt recovery practices with FinBox CollectX
So far, lenders have placed collections above customer retention and loyalty - but it doesn’t have to be one or the other. With the right technology, lenders can create omni-channel flows and multi-touch communication sequences that place the customer’s preferences and where they are in the debt cycle. Take FinBox CollectX, for example - a collection prioritisation and early warning system for lenders’ digitally acquired portfolio.
Before the EMI due date has passed, the engine generates a prioritisation matrix based on the borrower’s EMI/balance ratio five days prior to the date. This helps lenders identify who’s likely to pay on time and who isn't.
How does CollectX do this? By analysing a comprehensive set of data points such as credit obligations, upcoming loan dues, and increased utilisation. With this, it also provides due date recommendations for at-risk segments in particular, as well as timely alarms for risky borrowers.
Once the due date has passed, it points out the best time to present e- Nach to the defaulter basis a real-time intelligence model. CollectX also enables lenders to allocate collection resources optimally based on the possibility of debt recovery and its overall value.
Through the collections process, CollectX analyses borrower behaviours and preferences to help lenders tailor the message, channel, and timing of communication - discerning between those in genuine financial strife and those who are wilful defaulters.
Here’s something that’ll have lenders scrambling to update their collections practices (if they aren’t already). Credit risk cost comprises 28% of underwriting management, 2% of fraud management, and 70% of collection management.
So while it may be the last step of the process, lenders clearly cannot afford to be thinking about collection after the fact. It isn’t about coercion and harassment once the due date has passed - it’s about taking a preventive and proactive approach to mitigate defaults and working with borrowers to find the best possible solution.
This needs a healthy mix of both manual efforts and technology - in fact, the former, when applicable, should be driven by the latter. And that’s exactly what CollectX helps lenders with.
Get in touch here to collect more, and collect better.