Effective Debt-Recovery Strategies Banks Can Use to Reduce Defaults
The debt recovery process is one of the tough tasks that a bank needs to include for the financial stability and sustainability of the business. As a lender, the first task for the bank is to provide loans to those customers who have the right credentials and a good credit history that will not become troublesome for the bank.
However, recovering the pending dues is a major part of the operation and risk management process for the bank, as it can boost the bank’s cash flow and increase efficiency in its overall operations.
It’s also important for the bank to have the right loan agent who completes all the work of due diligence and then verifies a borrower based on their merit. It’s also a strategy for a lending institution to have the right person and technology to complete all the necessary steps.
In this blog, we will examine some of the steps one can take when making strategic decisions about how banks can ensure they are efficiently collecting the dues from the loan recovery process.
Steps to Include to Enhance the Debt Recovery Process
The quality of the bank is determined by the risk measures it can take, and that means having lower non-performing assets that have a better chance of return for the lender. A bank can follow several strategies to ensure that the majority of the loan book turns positive, and thus, it needs to set up an internal loan recovery team that can help the bank access the borrower.
- Set Clear Lines of Communication Channels
There are several communication channels that a bank needs to establish with the borrower to ensure the right communication. If the borrower has missed payment days, then it’s essential for the bank to communicate with the customers and ensure that they can make the monthly payments of their loan.
A bank can set communication channels through multiple platforms, and for that, they need to ensure they have the phone number, email, and another point of contact through which they can connect with the receiver.
- A Systematic Follow-Up Schedule Needs to Be in Place
A systematic follow-up schedule needs to ensure that the borrower is following or not following what they have suggested. For a bank or a lender who can’t make the follow-up for them, it’s necessary to ensure that they have one. It shows that on follow-up, the majority of people have the chance to make payments, and that secures the lender’s loan book.
- Choose to Close the High-Priority Accounts
The next thing that one can do is choose the high-priority service where the amount is much larger, and for that, the lender needs to keep track of such accounts where they need to make a high amount from the recovery process.
In the process of financial impact analysis, a lender needs to choose such accounts where they have high-risk exposure. For example, a lender can get in touch with the agents from a finance DSA app, and through them, they can have the right system that will help them to get the right borrower from whom the recovery is necessary.
- Create Systems for Automated Reminders and Notifications
Now, certain borrowers miss the payment multiple times, and for them, it’s necessary that they get reminded with the right messages before the time of debt repayment so that they can arrange funds and make the payment.
Here, a bank can create schedule alerts or custom notifications curated for each borrower. Finally, a bank can integrate the process with a CRM that helps the relationship manager contact the borrower during the debt recovery process.
- Provide Flexible Repayment Terms in Recovery
Once a person gets the flexible repayment option, the final thing that a lender can do is provide new terms that will help the lender ensure that the funds are collected and sometimes allow the borrower to arrange funds.
A mutually beneficial term allows the lender to have a positive outcome after the end of the lending period. This helps the bank or institution gather funds faster and reduce its financial losses.
These are some of the aspects that a lending institution needs to consider to ensure that it has the right method in place to recover funds.
