Mumbai: After years of criticism over alleged rough handling of customers by payment recovery agents, ICICI Bank Ltd is starting to rely more on in-house relationship managers rather than external agencies.
In the past six months, India’s second largest lender has more than halved the number of its collection agencies to about 900 from 2,300.
The move is also in line with the bank’s new strategy to drive its loan sourcing business from its branches than through direct sales agents.
“We are in-housing collection as a preventive measure,” managing director and CEO Chanda Kochhar told Mint in an earlier interview. “Instead of a collection agent approaching a customer 90 days after the loan is overdue, an ICICI Bank relationship manager...keeps a track of the loan and its performance.”
Better approach: Managing director and chief executive officer of ICICI Bank Chanda Kochhar. Abhijit Bhatlekar/Mint
Besides, a collection agency pockets a commission of 3.5-20% of the amount recovered, depending on whether the borrower had defaulted on a single instalment or the loan had been written off.
Also, banks set stiff recovery targets for the agencies, perhaps driving them to be more aggressive.
ICICI Bank in 2007 had paid more than Rs15 lakh as compensation to the wife of a customer who committed suicide after being harassed by the bank’s recovery agents. They also had to battle many lawsuits by customers alleging use of force by recovery agents employed by ICICI Bank against defaulters.
Currently, ICICI Bank uses its own collection team of about 1,500 officers only to recover loans for homes and commercial vehicles. It plans to extend this to include auto loans in the next two-three months. For other small, unsecured loans, the bank will largely use text messages, emails and phone calls to recover or collect payments, said deputy managing director Sundeep Bakhshi.
“We want to ensure that the cost of collection in small-ticket loans, which is largely unsecured loans, should be brought down to 2% of the total portfolio. As of now, it hovers in the range of 5-10%, depending on the unsecured loan products,” said Bakhshi. “We would be happy if it comes anywhere close to 5%.”
The cost of collection for secured loans, including mortgage loans, would be less than 1% of the total portfolio, he added.
“In-housing of collections would be rolled out product by product gradually. For wilful defaulters, we will continue to take legal recourse. Hardcore defaulters in the unsecured loan business and loans that are overdue for 180 days would continue to be handled by collection agents,” Kochhar had said.
For intentional defaulters, the bank intends to employ its legal processing outsourcing unit of about 100 people. It also has a dispute resolution team of 100 to solve disputed transactions.
For now, the collection agencies ICICI Bank is still associated with are being trained extensively on the softer aspects of recovering payments, such as customer relationship management. Bank executives who source the loan would also be in charge of collecting repayments.
To ensure repayments, ICICI Bank’s loan executives now try to convince customers to opt for an automatic deduction of monthly instalments from their bank accounts.
The lender is also using Disha Financial Counselling, which was set up under the aegis of ICICI Trusteeship Services Ltd, to offer credit counselling to customers to check defaults. Disha has offices in eight centres and is run by retired bankers.
“Disha is also being revamped as we realized people caught in a debt trap are not willing to walk in and take financial advise voluntarily,” said senior general manager Madhivanan B. “The bank has also noticed there is a reasonable high level of debtors working in the top 100 companies. We have realized that a huge chunk of the salaried class is conveniently not paying their credit card debts.”
ICICI Bank’s non-performing loans as on 30 June stood at 2.19% of the total credit it has provided as against 1.74% in the same period last year.
Disha is tying up with corporate houses at a time when some of them are laying off employees to recoup from the downturn, and helping restructure the loans of such individuals.