Informist, Friday, Sep 6, 2024

--Punjab & Sind Bk ED:Need more effort on credit underwriting practices

--CONTEXT: Punjab & Sind Bank ED Rajeeva at FIBAC 2024 conference

--Axis Bk official:Regulator responded on time by hiking risk weights

--Axis Bk official:Daily credit reports can aid better decision-making

--PNB ED: Should have well-defined, strong underwriting processes

--PNB ED:Collection accounts should be with bks for better efficiency

--PNB ED: Focus on stopping slippages to special mention accounts

--South Indian Bank MD: Should underwrite phone-collectible assets

--YES Bank official:End-to-end collection journey automation important

--Axis Bank official: Need to catch up on collection data analytics

--PNB ED: Need deposit account aggregation in retail

--PNB ED: Need more awareness on credit score for customers

--YES Bk official:See delinquency from over-leveraging, multiple loans

--Shriram Fin official: Unsure if specialised collection team needed

MUMBAI – The nature of delinquencies in bank loans has changed considerably over the past two quarters, with customers who are now over leveraged and have multiple loans, said Pankaj Sharma, chief strategy and transformation officer of YES Bank, at the FIBAC conference 2024.

"If you have seen the latest trend in the last couple of quarters on the unsecured side, what we've seen is that the people who are defaulting have taken multiple loans, and they are over leveraged, so on the collection side it is also very important that you are the first one to collect," Sharma said.

Punjab National Bank Executive Director Binod Kumar also spoke about the concern around delinquencies. He said that banks should focus on preventing slippages to special mention accounts and one way to prevent bad loans was to increase awareness among customers regarding the impact of delinquencies on their credit scores.

On the same panel, Sudipto Nag, the president – Retail Portfolio Management Group, Axis Bank, said that the Reserve Bank of India's decision to hike risk weights on personal loans was a timely one. In November, the RBI increased the risk weight on exposure to consumer credit, including personal loans, of commercial banks and NBFCs to 125% from 100?rlier. It also increased the risk weight on credit card receivables of banks to 150% from 125%, and those of NBFCs to 125% from 100%.

UNDERWRITING

Bank officials spoke at length about the importance of robust underwriting practices. "Unless we have a very strong underwriting process, you may put in a number of efforts, but the collection system may not work," Punjab National Bank's Kumar said. He also said that to keep a close eye, and for higher efficiency, the collection account should be within the bank itself.

Kumar also said that there is a need for aggregation of retail deposit accounts, which can help banks in keeping track of a borrower's financial status. Humming the same tune, Punjab and Sind Bank Executive Director Rajeeva said that more efforts are required in credit underwriting processes.

South Indian Bank Managing Director and Chief Executive Officer said that banks should focus on underwriting assets that can be collected on phones. "My view is that the bank should figure out how to underwrite assets that we can collect on the phone. The moment you have to get to the field and some of the problems are there and the phone can be monitored by the bank too. So my view today is that the field is actually not particularly efficient," he said.

YES Bank's Sharma said that one way to increase collection efficiency for the future is end-to-end automation of the process. Axis Bank's Nag said that banks need to catch up on collection data analytics.

Nag also said that to keep track of delinquencies, there is a need for daily credit reporting on unsecured loans.

Umesh Revankar, the executive vice chairman, Shriram Finance, said that he believes that there is no need for hiring a special collection team anymore. "Today, structurally, I think, the individual behaviours are different. So in this environment, whether you need a specialised collection team is something of which I am not very sure," Revankar said. End

Reported by Kabir Sharma and Sourabh Kumar

Edited by Akul Nishant Akhoury

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