Reduce the Impact of Moratorium using ML-based Intelligent Loan Collection Solution

Loan collection has become all the way important. RBI has declared moratorium for customers to repay their loans, initially till May 31st, and thereafter extended another 3 months taking it up to August 31st, 2020. After moratorium ends loan collection will be the priority. 

As with many other sectors, COVID-19 impact on the financial segment is known to be very high. The economic set back that the country has faced will negatively affect the credit risk of the financial institutions.

As a part of helping the common people sustain during this tough time, the Government has come up with various supporting measures. Providing Moratorium for loan repayment was great support for customers.

Financial institutions are analyzing to find how will the NPA look further to the moratorium period? All these lead to the need for an intelligent Loan collection solution in place.

Impact Of Moratorium Period And Need Of A Loan Collection System

13th June 2020 Business Line says that “According to industry insiders close to 40 to 50 percent of customers opted for moratorium facility in March to May period but has seen a gradual decline in this number from June to August period when an extension has given by RBI”. 

Cholamandalam Investment and Finance company tells that 76% of the loans are under moratorium whereas for Bajaj Finance stated that 27% of the loans have opted for a moratorium. (This status is as at end of April, Says Business Line 22nd June).

A major chunk of SMEs and MFIs opt for the moratorium. A lot of NBFCs have good exposure to these segments, the risk increases depending on the company’s exposure to these segments.

The new business will be less because of the limping economy. Disbursals are likely to remain flat during the current year, says Manish Jaiswal, CEO, Magma Housing Finance, because there was hardly been any disbursement up to May end in this Financial year. Fundraising is becoming a challenge because investors (banks, capital markets, etc.) are risk-averse.

The focus will be very much on the collection and improve operational efficiencies. CRISIL says support from banks will be crucial for NBFCs in the coming months for managing liquidity. In the stress case scenario, the proportion of companies with low liquidity could go up to 25% -NBFCs must ramp-up collections. If banks extend the moratorium to NBFCs the liquidity cover will improve a lot.

But till now Banks has not extended moratorium support to all NBFCs. Some of the NBFCs have got written confirmation from Banks on getting moratorium.

Managing Loan Collections Further Moratorium Period

In an NBFC webinar coordinated by ASSOCHAMMr. Ajit Pai from Niti Ayog was raising a few queries to small, mid-size, and big NBFCs of the country.

He asked, “Among your customers, do you know who is going to repay and not going to repay after the moratorium period?. 

Also, he asked, “How does your NPA look like after the moratorium period ends?”. 

These questions are indicators on the immediate next steps for the financial institutions on placing the right Loan collection system and make use of this.

The larger players in NBFC segments tells that in the near term, the focus is on recoveries and cost efficiencies. Many NBFCs are having less automation in loan collection and almost nil analytics or dashboards to help improve their collection.

Now it is time to have a proper system in place to monitor and manage your customers with a proper credit monitoring tool. The following are the major components of a comprehensive delinquency management system:

  • Intelligent loan collection and monitoring system with Analytics
  • Configurable Early warning system (EWS) solution
  • Machine learning (ML) based prediction of loan default
  • Automated workflow system for Legal and recovery

NBFCs or any financial institution adopting the above systems can effectively control their credit risk. Daily it will alert you about the top loans which need your attentionCommon queries such as What are the commitments of customers for the day, which are the failed commitments, how many times commitment has failed etc. should get proper answers.

A complete repayment profile of your customer should be generated on a dashboard. This Centralized and Smart system Loan Collection system also includes integrated role-based mobile applications capable of alerting and escalating to the user about their accounts.

There should be a system that helps you with the proper Work Breakdown Schedule (WBS). Work allocation to the loan collection team along with their performance analysis will be a part of this system.

The Early Warning Systems (EWS) solution will provide proactive reporting on the loans well in advance of their actual default. It will be based on pre-defined signals.

Now there are cost-effective Machine Learning (ML) based predictive analytical tools available in the market. They are capable of successfully predicting your loan default by analyzing the patterns in your data.

Nowadays technology has improved a lot such that it requires very little computing power and these systems can be installed in your ordinary server machines.

BEACON Delinquency Management Solution is an end-to-end credit management tool. This solution is from Speridian Technologies a leading IT solutions provider. It is an analytical solution with built-in intelligence based on ML. 

With more than 20 successful installations across the country, the software helps leading banks/NBFCs/Co-operative Banks to intelligently and cost-effectively manage their delinquency.

Vinod Puliyakote

Vinod Puliyakote

Vinod Puliyakote has 28 years of experience in building software products in the banking domain with the motto “Do not compromise on Customer satisfaction”. Vinod is an ISACA member, CISA certified Auditor and ISO 27001 lead auditor.

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