Pandemic, loan moratorium hits third-party recovery agencies.

• Recovery agencies are paid a commission of at least 3% on the amount recovered and it changes depending on how long the loan was delinquent for and its size

RBI

The Reserve Bank of India’s (RBI) relief on loan repayments might have helped a lot of borrowers during the coronavirus outbreak, but the moratorium, coupled with banks going slow on recoveries has hit the business of third-party recovery agencies.

These businesses solely depend on lenders for recovery assignments. These agencies are engaged by both banks and non-bank financiers to recover loans from delinquent borrowers.

Four agencies, which Mint spoke to said, as banks have stopped giving any business since the lockdown began, their revenues have dropped more than 90%.

Sanjeeb Manoranjan Saha, owner of Storm Financial Service, an agency that recovers loans for private banks and non-banking financial companies (NBFCs), said the agency is following up on a handful of pending non-performing asset (NPA) cases. Storm Financial Services is based in Thane city of Maharashtra and its assignments include recovery of both bad loans and loans that are overdue but not yet NPA.

“We are not able to make any money at the moment as there are no new cases allocated by banks since the lockdown. That apart, manpower is one of the primary resources of this industry and 40% of my employees have gone back home. While some of them are willing to work from home, others are reluctant," said Saha.

Recovery agencies are paid a commission of at least 3% on the amount recovered and it changes depending on how long the loan was delinquent for and its size. The moratorium, Saha said, has caused a lot of disruption in the industry. In some instances the moratorium led to customers thinking it is a waiver of equated monthly instalments and not a mere deferment.

“At present, we cannot pressurise customers but only request them to clear their dues," said Saha, adding that the company is relying only on telephone calls to keep reminding the customer, negotiating the resolution. With no field visits, the recovery rate has also declined to 10% every month, from as much as 90% before the lockdown.

Interestingly, the loan recovery agencies, infamous for their threats and coercive techniques are now in spot and have had to reduce staff strength to manage cashflows. Before the RBI clamped down on such practices in April 2008, banks, especially from the private sector, have come under criticism for employing forceful recovery measures, including threats by musclemen.

M Asir, owner of S M Associates Risk Management Pvt Ltd, a Chennai-based recovery agency also said that the flow of new cases has dried since the lockdown and that has led to the company sending some employees on leave.

“There are more than 230 employees in the company but because of the halt in business during the lockdown, we had to send about 70 people on leave," said Asir, adding that his collection executives are now working from home and following up on pending cases over the phone.

Meanwhile, banks have also been going slow in recoveries during the lockdown and have resorted to nudges and sensitising borrowers about the effects of default. Bankers said that they might have to restart full-fledged recovery efforts from July-August as the lockdown restrictions ease.

Rajkiran Rai G, chief executive, Union Bank of India had told Mint in an interview last month that as businesses start reopening, banks may also have to start some recovery efforts from July onwards.

“Since we are giving a lot of reliefs for small businesses and retail customers at the moment, some kind of recoveries will have to start. It will be a very soft recovery push as we have not pushed for recoveries during the lockdown owing to financial difficulties of borrowers," said Rai