Collection Process



In the highly competitive retail banking environment, every financial institution is focusing on growth in business by new acquisition of customer as well retention of existing customers, expansion and increase in market share. At the same time, financial institutions need to control the rising delinquency to increase the profit else banks will land up in a situation which they had already seen in 2008-09. Presently we can see the same kind of competition which we had seen in between 2005-08 and presently the players are more in the market than 10 years back.

Financial Institution is also simultaneously building up the robust collection mechanism to handle the bad accounts. The collection process has changed drastically which we used to follow in last decade mainly collection by giving threat, showing power etc. In past we had come across many incidents where managers of financial institutions were arrested for giving threat, misbehave, showing power etc.

Presently major financial institutions are following proper collection mechanism which is very effective though sometime few processes takes longer time to recover the money. Institution follows different collection process depending upon the category of the delinquent customers.

First of all, we will try to understand how the institution categorized the delinquent customers. All delinquent customers are categorized into bucket wise like 1-30, 31-60, 61-90 and so on. The number mentioned are days past due (DPD) means how many days are delayed from the schedule due date of interest payment/ Equated Monthly Installment (EMI) Payment. For example, if interest/EMI due date on 1st of every month and the customer didn’t serve the interest/EMI on 1st and today is 15th, hence the account is due for 14 Days i.e. 14 DPD i.e. account is in 1-30 Bucket. Delinquent case moves from softer (1-30 & 31-60 bucket) to harder bucket (61-90 & above).

Depending on the bucket & categories of product given to the customer, institution follows the collection process like in-house tele-calling set up, collection officer, through third-party collection agency & legal tools.

Initially financial institution calls to the customer to pay the EMI amount after default of interest/EMI payment on due date. If the customer does not pay the required amount within 30 days from the due date, the account moves to 31-60 bucket and mainly allocate to the collection officer. Again if the collection officer unable to collect the amount within 60 days, the account moves to 61-90 bucket and allocate to third party collection agency.

As per RBI norms, all the collection officers, associates and agent should attend 100 hours training programme named ‘Debt Recovery Agent (DRA) Training’ which is given by Indian Institute of Banking & Finance (IIBF) prior go to the field to recover the money from default customer.

Apart from regular follow up to the default customer through collection agent, financial institution starts initiating the legal procedure like case file u/s 138 for cheque bounce (Negotiable Instrument Act), Arbitration, Suit File, Debt Recovery Tribunal (DRT), Winding up petition etc.

But we need to keep in mind that any wrong underwriting / bad funding will increase NPA percentage as well as eat the profit of the organization. Hence any financial institution should improve the underwriting process and provides different tools, training to underwriter to increase the quality of underwriting and simultaneously build up the robust collection process, so that the financial institution can fund to the maximum customers and provide maximum the financial support to those clients who actually require funding.