The State Bank of India, the nation’s largest lender, is implementing an innovative strategy to ensure timely repayments, especially from its retail borrowers. To address potential defaulters on their monthly installments, the bank plans to greet them with a gift of chocolates.
This move is aimed at enhancing collections, given the growing level of retail lending in the system and the rising delinquency rates due to increasing interest rates. In the June 2023 quarter, SBI’s retail loan portfolio surged by more than 16.46%, reaching ₹12,04,279 crore compared to ₹10,34,111 crore in the previous year, making it the bank’s largest asset class. SBI’s total book size stood at ₹33,03,731 crore, with a year-on-year growth rate of 13.9%. Notably, within the entire system, double-digit loan growth of approximately 16% has been primarily driven by retail loans.
Ashwini Kumar Tewari, the managing director responsible for risk, compliance, and stressed assets at SBI, shared details about this novel approach. SBI is currently piloting this method with the assistance of two fintech companies that utilize artificial intelligence. One fintech is engaged in reconciling with borrowers, while the other alerts the bank to the likelihood of a borrower defaulting. For those borrowers identified as potential defaulters, representatives from the fintech company will personally visit them, bearing a gift of chocolates, and remind them of their upcoming EMIs.
Tewari explained that this unique approach, involving personal visits with chocolates, is necessary because borrowers planning to default often ignore reminder calls from the bank. He noted that the success rate of this method has been highly encouraging. Tewari did not disclose the names of the fintech companies involved, as the initiative is currently in the pilot phase and was launched just about 15 days ago. However, he mentioned that if successful, the bank will make a formal announcement.
SBI is also in discussions with several other fintech companies to enhance its collection efficiency. Tewari stated that the bank aims to formally collaborate with at least half of them by the end of the year. He added that they plan to continue the pilot program for at least four to five months.
SBI’s retail loan portfolio, exceeding ₹12 lakh crore, includes personal, auto, home, and education loans. With a home loan portfolio of over ₹6.3 lakh crore as of June, SBI also holds the position of being the largest mortgage lender in the country.
How this new method works:
- The two fintechs that SBI is working with use artificial intelligence to analyze the bank’s data on borrowers and their repayment patterns.
- The fintechs then identify borrowers who are likely to default on their next EMI.
- SBI representatives then visit these borrowers’ homes, carrying a pack of chocolates.
- The SBI representatives remind the borrowers of their upcoming EMI and offer to help them work out a payment plan if they are having difficulty making the payment.
- The SBI representatives also leave the borrowers with a pack of chocolates as a token of goodwill.
This new method has been successful because it is more personal and empathetic than traditional collection methods. Borrowers are more likely to respond to a visit from a bank representative who is offering to help them than they are to a reminder call or a letter.