Banks make emotional appeals to get borrowers to repay loans

Dena Bank, PNB among those trying a series of innovative measures, like home visits and TV ads involving children, in efforts to ensure defaulting borrowers repay loans


Even after working on recovery with a single-minded focus, the banking system is yet to see a meaningful decline in the stock of non-performing assets worth Rs6 trillion. Photo: Bloomberg
Even after working on recovery with a single-minded focus, the banking system is yet to see a meaningful decline in the stock of non-performing assets worth Rs6 trillion. Photo: Bloomberg

With Reserve Bank of India’s 29 September notification on publishing photographs of wilful defaulters, banks may not be able to name and shame defaulting borrowers as indiscriminately as before. But that doesn’t stop them from employing innovative ways to compel borrowers to repay.

A TV commercial by Dena Bank released on 15 September shows a daughter chiding her businessman father for wilfully defaulting on the loan and exhorting him to repay the bank, which has been the reason behind the family’s prosperity. This TV commercial is part of the Rin Samadhan Campaign, a scheme introduced by Dena Bank in September, calling small borrowers with loan of up to Rs2 lakh, agriculture borrowers up to Rs10 lakh and remaining borrowers to settle their outstanding dues with the bank. The scheme allows partial waiver of loans provided the borrowers meet criteria laid down by banks.

Such emotional pleas are the latest in a series of measures from banks to force borrowers to repay.

Dena Bank’s chairman and managing director Ashwani Kumar says the idea behind the ad film is part of the larger strategy used by the bank to recover loans of less than Rs5 lakh.

According to Kumar, a war room has been set up with 10 managers headed by a general manager, who will drive the loan recovery process, sitting in the bank’s headquarters in Mumbai. “We wanted to show the younger generation, which aspires for a transparent and cleaner society, trying to influence the older generation,” said Kumar.

In the fiscal year 2016, Dena Bank posted a loss of Rs935 crore due to a jump in bad loan provisions by 200%. The bank had made cash recoveries worth Rs728 crore, wrote off loans worth Rs759 crore and upgraded loans worth Rs443 crore during the year. Kumar is confident that measures like the Samadhan Yojana will lead to improved recoveries for the current fiscal year.

Punjab National Bank (PNB) is also going after bad loans. “PNB’s recovery staff does regular field visits to loan defaulters’ houses every weekend, meets with the family members of these borrowers and apprises them of the situation. Such visits have only aided the bank’s recovery process, which in the last two consecutive quarters have seen incremental cash recoveries worth over Rs4,200 crore and is expected to repeat a similar performance in the September quarter as well”, said managing director and CEO Usha Ananthasubramanian.

PNB intensified recoveries after posting a record loss of Rs5,367 crore in the March quarter with gross non-performing assets as a percentage of total assets hitting 12.9%, from 6.55% a year ago. The bank posted a net profit of Rs306 crore in the June quarter, thanks to the increased thrust on recoveries.

Some other state-run banks are not so confident about the impact of such emotional appeals. “Banks will use such measures with long standing customers who had better relationships. This had an effect to a certain extent. But the problem is with new customers who do not have any loyalty to the bank or for relationships,” said a senior banker on condition of anonymity.

Even after working on recovery with a single-minded focus, the banking system is yet to see a meaningful decline in the stock of non-performing assets worth Rs6 trillion. According to RBI, annual recovery as a percentage of amount of cases filed under SARFAESI Act, DRT and Lok Adalats fell from 20% in FY14 to 9% in FY16. However, with the recent amendment to these laws, bankers are hopeful that recovery will pick up.

“We are worried about the stock of loans which has accumulated over the last three years. We remain circumspect about banks’ ability to recover these loans in future,” said Saswata Guha, director of Fitch Ratings.

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