Soft bucket collection for recovery of bad debts for financial institutionsby Christian Silmaro Christian
Collection of loans is a process which is followed by rules and regulations. Nowadays, financial institutions building up their own collection mechanism for better care of the bad accounts of the company. The collection process is completely changed compared with the past. In the present scenario, the financial institutions follow a proper procedure to handle the bad accounts.
It is necessary to follow the prescribed rules and efficient methods to recover such accounts some processes takes a bit more time to recover the money. Depending upon the delinquent customer collection process may vary.
Soft Bucket collection
Delinquent customers are categorized into various groups such as 1-30 DPD, 31-60 DPD, and 61-90DPD and so on. Here DPD refers to how many days are delayed from the scheduled date of payment or Equal Monthly Installment (EMI) payments. For Example: If the interest of EMI due date is 5 of every month and customer have not paid the amount till 20th, so the account is due for 15 DPD. Therefore the account is in 1-30 DPD days bucket. Here the delinquent customer moves in a softer bucket (1-30DPD &31-60DPD).
Depending on the delinquency & loan given to the customer, institutions follow the collection process to recover the debt such as tele-calling setup, third-party collection agencies, collection officers or legal tools.
In the soft bucket, the banks /NBFC / Financial institutions make a call to customers to pay their respective EMI's after their first default or EMI due date. In case the customer is not able to pay the EMI amount within 30 days from the due date, the account moves to 31-60 bucket and the account is allocated to collection officer. The next step, if the collection officer is not able to recover the debt within 60days of the allocation it will move to next bucket i.e 61-90 bucket and is allocated to the third party agency to recover that debt.
One should keep in mind that wrong underwriting or any bad funding will automatically increase non - performing assets (NPA) percentage and will affect the profitability position of the organization. However, it is mandatory for every financial institution that they should maintain their underwriting process and training. Create strong collection process and funding should be done with a proper process and observation.
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Created on May 18th 2018 06:40. Viewed 32 times.