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Photo: iStockphoto
Photo: iStockphoto

Banks rely on 'soft calls' to keep recoveries flowing amid lockdown

State Bank of India, for instance, has increased the frequency of such calls to borrowers, which unlike recovery calls, are meant to keep customers educated about the implications of defaults

MUMBAI: Indian banks are relying on 'soft calls' and nudge to recover overdue loans from delinquent borrowers as restrictions on the movement of collection executives remain despite easing of the nationwide lockdown from 1 June onwards.

State Bank of India (SBI), for instance, has increased the frequency of such calls to borrowers, which unlike recovery calls, are meant to keep customers educated about the implications of defaults. In the past, banks, especially in the private sector, have been criticised for taking forceful recovery measures, including threats by musclemen.

“Let me tell you that our soft calls, not the recovery call but our customer engagement during this period has increased because people are working from home and they have been told to do soft calls on the customers," SBI chairman Rajnish Kumar told analysts on 5 June.

Bankers said for smaller loans, on-ground presence is quite essential for recoveries and since it was not possible during the lockdown, non-coercive techniques such as calls are being made. While the loan moratorium was applicable to standard assets, loans that were already non-performing and did not get the deferment benefit will have to be recovered, they said.

Rajkiran Rai G, chief executive officer (CEO), Union Bank of India said banks will have to put some recovery efforts from July as businesses start reopening.

“Since we are giving a lot of reliefs for small businesses and retail customers at the moment, some kind of recoveries will have to start. It will be a very soft recovery push as we have not pushed for recoveries during the lockdown owing to financial difficulties of borrowers," said Rai.

The three-month moratorium, permitted by the Reserve Bank of India (RBI) on 27 March, has now been extended to another three months till the end of August. Analysts at Motilal Oswal Financial Services pointed out that large banks have a proportion of moratorium loans ranging between 25–35%, in value terms. For small and mid-sized banks, the moratorium has been much higher.

Banks have also said their recoveries have been affected by the covid-19 lockdown. For instance, IDBI Bank said it fell short of its recovery target by 700 crore owing to the covid-19 pandemic and the ensuing lockdown. A private sector banker said on condition of anonymity that recovery of secured assets will not be difficult as the onus, for instance, in a home loan is always on the borrower.

“The borrower is aware that he could lose his/her home if the repayments are not made. For personal loans and other unsecured loans which were stressed even before the lockdown, the recovery efforts will gradually start, although we have been doing whatever we can," said the private sector banker quoted above.

Experts believe that the limited reach of collection executives in the lockdown period will pose a challenge for lenders. Credit bureau TransUnion Cibil said in a report on 11 June that adherence to social distancing norms and limited field travel to impact overall lender collection efficiency, resulting in an increase in roll rates across various buckets.

A recently-retired chief executive of a public sector bank said that there are areas in which the banks have stepped bank, like in the case of small business loans and are not sending people for collection at the moment.

“Having said that, some of the efforts have taken backstage but depending on how the unlocking happens, recoveries have to come back as that is the integral to the function of banks. Otherwise the system would collapse," said the retired chief executive cited above.

Nirmal Gangwal, founder and chairman of Brescon & Allied Partners LLP, a debt restructuring advisory firm said banks are trying to do whatever they can even under the current constraints and they will soon activate much wider recovery of loans as the economy gradually opens up.

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