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The Power Punch

Highly trained commandos equipped with hi-tech weapons and backed by a command-and-control center drive are used to recover valuable national assets. Ajay Bansal has seen the same approach work for recovering NPAs in different stages of stress:

India’s NBFC sector has been emphasizing asset quality improvements while releasing Q4FY24 results. However, the underlying stress in their loan books remains unaddressed. All NBFCs report their Gross and Net NPAs, but these metrics obscure the true scale of stressed debt, which encompasses 3 segments – write-offs, NPAs, and pre-NPA accounts. Out of a total loan book of Rs60 lakh crore, the total exposure of NBFCs in each of these segments is estimated at Rs9-10 lakh crore. With each segment accounting for 5-6%, the combined exposure stands in the 15-18% range, substantial indeed.

While NBFCs work diligently to control this rising challenge, reliance on traditional methods is a bottleneck. To tackle the mounting pressure of stressed debts, NBFC management must adopt new approaches and re-engineer their strategies to boost recoveries and enhance cash flow.

NBFCs have 5 primary tools for debt recovery:

  1. They employ tele-calling to contact borrowers and field agents (internal and external collection agents) to meet the borrowers and encourage repayments.
  2. They resort to legal measures like arbitration to resolve disputes, followed by execution of arbitration awards.
  3. They initiate legal proceedings when cheques/NACH bounce.
  4. They use the SARFAESI Act to seize assets against secured loans.
  5. They leverage the IBC framework for broader insolvency cases.

There are several techniques to make each of these tools more impactful. Here are 5 techniques that have yielded exemplary outcomes:

1 – Set up a dedicated analyst team for Data Analytics: Just as sales benefits from macro-level and micro-level analysis, so does loan default recovery. The best way is to form a dedicated team of analysts picked from credit and operations, and support it with input from the sales team to make actionable recommendations. This team is like a command-and-control center for special operations. It empowers the legal and recovery/collection teams by collecting and compiling crucial information for driving recovery. Just as sales creates a Credit Appraisal Memorandum (CAM), this special team must create a Recovery Appraisal Memorandum (RAM), a document that consolidates scattered data. The RAM is a force multiplier for resolving default cases.

2 – Training to Collection & Legal Team: Inadequate training is a major bottleneck, and there is a pressing need to upgrade the skills for both collection and legal teams. There are 3 key areas for training: (i) building smarter customer relationships, (ii) effectively tracing customers who are hard to locate, and (iii) ensuring that each interaction or field visit produces tangible results. Training must go beyond following standard processes to innovating and developing strategies to take decisive actions at every step. Teams that follow outdated practices cannot crack tough cases.

3 – Co-ordination & Team Work: In many NBFCs, the legal and collections teams operate in silos, working on different strategies even for the same case. This lack of coordination leads to fragmented approaches and missed opportunities. A more effective outcome is produced when these teams work collaboratively and have access to insights from 3 key departments – sales, credit, and operations. This integrated approach provides a comprehensive understanding of each case, and aligns efforts of the legal and collections teams, achieving remarkable results in both courtrooms and field operations.

4 – Effective & Efficient Use of Legal Remedies: Almost everyone believes that legal proceedings are inherently slow and that courts rarely deliver timely results. This misconception is detrimental to NBFCs as it fosters a mindset that discourages process improvement, whereas the bigger issue is internal inefficiencies. Many internal and external legal teams are unable to provide courts with the required information, and often fail to leverage game changing legal provisions. Consistent court attendance, which is crucial for speeding up proceedings, is frequently overlooked. Many external law firms, have a relaxed attitude, especially for cases involving arbitration, execution, and cheque bouncing. NBFCs must examine and redress all these inefficiencies delay desired outcomes.

5 – MIS & Review: A robust Management Information System (MIS) combined with a review process co-create a crucial real-time mechanism to track and analyze recovery processes, monitor KPIs, identify trends, detect inefficiencies, assess progress, and make quick informed decisions.


These 5 strategies have actually resolved numerous cases that had been stagnant for years, often deemed unsolvable. Earlier, these cases were left unattended, reinforcing the notion that they were beyond recovery. The case resolutions have set a new precedent, demonstrating that the right approach can turn around even the most vexing cases at a much lesser cost and achieve much better results and cash inflows. The substantial impact on the bottom line will recharge NBFCs to pursue and achieve ambitious goals.


Ajay Bansal is a Delhi-based NBFC Researcher & Consultant.

[email protected]

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