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Collections: From bucket-based to risk-based

Collection systems are increasingly getting digitized and various approaches by financial services institutions make them more and more efficient:

Anuj Pandey

When it comes to collection efficiency for MSMEs, a situational, 360-degree approach is the most effective. For example, U GRO Capital, being a sector-specific lender, is focusing on leveraging knowledge and experience to understand the cash flows of the entire ecosystem in which a business operates and of the customer’s business as well at a granular level. In situations involving temporary cash flow issues, the company’s approach is to intensify the collection process. For varied situations, it utilizes other tailored solutions.

According to Anuj Pandey, Chief Operating Officer, in the collection process it is crucial to define clearly each milestone and ensure close monitoring of the required actions that need to be taken when such individual milestones are met or missed.

On its part, Fincare Small Finance Bank has built loan collection tools that not only enhance the customer experience but also lower the cost of operations, thus impacting the bottom line. The bank follows a hybrid analytics-driven collection approach, where extensive benchmarking is done and these are validated at the field level through pilots at select markets.

“Post evaluation of the pilot results, suitable collection models are launched across all markets,” says Soham Shukla, Chief Operating Officer – Rural Banking at the bank, adding: “In a nutshell, the combination of expertise and experience has helped us fine-tune our collection strategy – leading to best-in-class collection efficiency, despite the disruption caused by the pandemic.”

Clix Capital has adopted both efficiency and a top-down vs. bottom-up approach to work in tandem to improve collection efficiency. Vishal Jain, Head – Collections, explains: “First is mind and later is the body and the 2 must work in a synchronized way to function effectively and efficiently.”

He adds: “A top-down approach defines the basic ground rules and direction to a bottom-up approach to ensure MIMO (Minimum Input and Maximum Output) and the bottom-up approach gives the feedback to a top-down approach to fine-tune the basic ground rules and direction to make it realistic and feasible to implement. Our adoption of both the approaches has helped us to segment the portfolio in a sharper and realistic manner to improve our collection efficiency as it was backed by field flavour.”


Vinod P

Clix Capital’s collection team is in touch with borrowers throughout the loan tenor – in EWS, bounce and delinquency management activities. This structure feedbacks have been infused in all the key decision-making processes like defining the souring scorecard, loss prediction of the portfolio and in refining the organizational structure with right reward and recognition program to manage the portfolio quality. Says Vishal: “Even in the current challenging environment where the regulator had declared various relief packages like restructuring, ECLGS, etc to the borrowers to come out from the difficult situation, collections learning has played a key role to identify the right customer segment to offer these packages to manage the portfolio in short and long terms.”

The appropriate collaborations between varied departments are critical to ensure high collection efficiency. Especially, teams from underwriting, collections and risk-analytics departments must work in tandem over the long term to ensure sustainable portfolio management. Anuj of U GRO Capital explains this feature: “At U GRO Capital, these departments work very closely. This collaboration is particularly instrumental in identifying portfolio and collection triggers at an early stage, post data analysis. The cooperation further extends to sales and product teams, which are key elements in the feedback loop, helping and refining the product proposition.”

Soham states that Fincare Small Finance Bank is in the business of ‘collecting money, not giving loans.’ There is a strong alignment between business, support, and control functions for ensuring robust growth and portfolio quality, he says, adding the risk team helps highlight the operating and credit risks, the audit team ensures strong adherence to processes and support teams provide the required manpower, training, technology, back-office support to help the business teams fulfil their goals.

Soham Shukla

He also shares an example where the risk team put together concentration risk analysis and loss estimation modelling that helped the business teams navigate the way forward in a smarter way.

Speridian Intelligent Collection System provides a holistic view of the scenario about collections. It helps collate the results from various departments such as HR, risk, finance, etc. utilizing the capability of EWS, analytics, AI/ML, etc. Vinod mentions that with the impact of the pandemic, there has been a drastic change in the approach where digitization got a major thrust and the digital adoption has been swift to everybody’s surprise. “Here comes the real benefit of collaboration,” he says, adding: “Our Beacon collection solution synthesizes the data from various channels, analyses, and provides valuable insights to the collection team, dashboards to the managers such that they can approach their customers proactively as well as be more informed.”

He also maintains that this has provided good results to the company’s financial services customers. “The alerts, reminders, collection team dashboards, etc provide updated information so that these companies can take productive action. Also, the manager’s dashboards and escalations provide help to take proactive steps and improve the results.”


U GRO Capital has a distinctive scorecard-based underwriting model, for which the company has filed a patent as well. The model takes into consideration the historical loan delinquency patterns and cash flow within each focused business segment. In this approach, the application score, generated at the sourcing stage, and the behaviour score, reflecting the customer repayment behaviour, are critical. Says Anuj: “Both scores are used as inputs in the collection strategy and process. These scores are dynamic and vary with time and circumstances. This process then dictates our collection strategy, to resonate with the posed situation, to achieve the best possible collection efficiency.”

Vishal Jain

Fincare Bank conducts Portfolio Quality Review (PQR) periodically by synthesizing internal and external data of each customer to understand the risk and evaluate future repayment behaviour. Basis this analysis, the bank creates customer segmentation and applies appropriate collection methodologies to reduce leakages.

Over a period, collection has also moved from the conventional way of bucket-based treatment to risk-based treatment, hence score plays an important role in defining the risk in the early MOB (Month on Book). As the MOB increases, the borrower’s internal and external behaviours gain higher influence in defining the risk score. Vishal explains this: “Even recent risk score helps to identify the improvement or deterioration in the portfolio, compared to souring score and to take corrective measure in new souring as well as the future loss prediction.”

According to Vinod, while NACH and e-NACH are extremely popular, other channels are getting more and more traction. Financial institutions are eager to utilize such ever-evolving facilities to reach out to customers, he says, pointing out that previously there were limited options for a customer to pay such as cash or cheque. But, more than the underlying technology, it is the convenience and acceptability of the end customers which is driving the adoption of systems.


Fincare Small Finance Bank recently launched a collection application that enables the loan office to update customer ratings at the time of collection. By gathering this data continually, the bank aims to create Early Warning Signals (EWS) for its field force and help them define bespoke collection strategy.

Customer behaviour score holds high importance in devising a collection strategy, believes Anuj of U GRO Capital. He says this is particularly essential to gauge the risk associated. Customer behaviour, being dynamic, impacts the score as well. “It is essential to appropriately analyze the behaviour to generate the most effective scores, to ensure efficient collection,” says he.

Collection has evolved in the past few years and the borrowers’ behaviour parameters are being used for the risk scorecard, which in turn helps to define the key input metrics like collection channel, collection intensity, engagement scripts and review mechanism for the institutions to improve collection. Vishal concludes the discussion: “Collection can be improved if we reach to the customer at the right time through the right channel with right communication script and all can be defined with the help of customer behaviour analysis.”

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