The Government is finally preparing to reopen the entire economy in a phased manner with Unlock 1.0. Multiple lockdowns have battered the entire economy and one of the biggest challenges facing the banking and non-banking financing companies (NBFCs) is to recover previous loans.
They are coming up with new strategies and plans. They will look into tracing all those who have borrowed once the loan moratorium and lockdowns are lifted completely. There were many layoffs, salary cuts, etc. as the business has been quite poor due to poor demand.
One of the largest lenders in India is considering a partnership with the Department of Post, so that they can contact all their customers spread far and wide throughout the country during this pandemic following safety procedures. Its viability was tested in Maharashtra. They currently have around 60000 business correspondents who deal with remittances, account opening, and other bank-based operations. They are shifting some of them to concentrate on the collection of agricultural loans.
“Plans are being set in place to improvise the efficiency of collections and to entice all the borrowers so that that they pay back promptly. To date, branches handled collections, now there comes the need to involve more business correspondents and to maintain a regular cash flow”- SBI official.
One of India’s largest non-bank lenders, Bajaj Finance Ltd is now adding over 2800 new officers to facilitate collection volume. They have put on a massive effort to increase its capacity in the last 60 days – CEO Rajeev Jain. The bank moratorium introduced by the RBI has been taken up by at least 27 percent of its total loans out of which 70 percent has never had any bounce history in the first quarter. 70% or Rs 9611 crore are loans from the auto finance business. Direct Cash Collection (DCC) model covers around 40 percent of the auto-finance business. In the second quarter, they saw a massive uptick of customers’ inability to pay cash from 19 percent in quarter 1 to 86 percent, this is attributed to extended lockdowns.
Fintech is expected to be the most hit. At least 3x loan losses are expected especially in the unsecured loan segment. CreditVidya a credit scoring firm reports that losses will be high due to loan stacking. Some of the highest risks could arise from digital loans and paydays.
