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:

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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 `60 lakh crore, the total exposure of NBFCs in each of these segments is estimated at `9-10 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: