Bank Officers Now Expect Recovery of bad Debts Through BPO

How BPOs will help government banks prune bad-loan book-Times of India--31st July 2013
MUMBAI: Several government-owned banks, are in discussions with outsourcing companies for help with debt collection at a time when bad loans are rising, opening up new business opportunities for BPOs. 

Public sector banks are new to outsourcing and face resistance from employee unions but are embracing the model to catch up with their private sector competitors and curb bad debts. State Bank of India, Punjab & Sind Bank and Corporation Bank are among the lenders in talks to outsource such parts of their business, industry experts said, but banks are reluctant to speak in public about their plans. 

"After the first wave of technology adoption that included core-banking software rollouts, public sector banks will now look to outsource simple, non-critical functions like calling and collections," said Milan Sheth, technology sector leader at consulting firm Ernst & Young. Most Bad Loans Are from PSBs 

Indian BPO companies, which provide debt collection services to US financial clients, are capitalising on the moves. Globally, financial services clients contribute over 50% of revenues for BPOs, but in India it has been lower, thanks to government-owned banks being outsourcing-shy . "We call up all the small and medium accounts to say that their cheques are due on a certain date and call if the payments are past the due date. 

That business will grow because banks are looking at controlling their non-performing assets ," said Sandip Sen, CEO at Aegis. The combined gross NPAs and restructured loans for the banking industry is 10% of the total loan outstanding. This is a big worry and most of the bad loans are from PSU banks. A parliamentary estimated earlier this year that the gross NPAs of public sector banks were at Rs 1.56 lakh crore as on December 2012. 

A large part of that, however, were related to large infrastructure projects while the BPOs would be helping with retail, commercial lending including home loan and credit card payments. Aegishas started working with three public sector banks and is in talks with other lenders for more such deals. Sen said he expects some contracts to be signed in this quarter. Serco, the Indian unit of UK-listed Serco Group, is also in the hunt for such deals. 

"The top 10 Indian government-owned banks are looking at outsourcing in some form. One of the things they are looking is debt collection . It's fundamental and core and they want to take a more organized strategy towards dealing with it," said Aditya Arora, managing director of Serco's India domestic. Arora expects at least two or three deals to close this year as the banks are moving fairly rapidly through the process. 

A senior banking industry executive who declined to be identified pointed to the fact that public sector banks were late adopting core banking systems, but they eventually did so. "Now that those systems are in place, they are looking at their processes, including collections , to become more efficient ." The executive said the trend of public sector banks looking to outsourcing is rising but that different banks were at different stages. 

The presence of strong public sector unions, which raise stiff opposition at any hint of outsourcing , also adds to the complexity of the deal structure. The deals, which would be 3-5 year engagements , may also involve the BPOs taking on some bank employees and some senior bankers may move to being consultants at the outsourcing firms. "We have rebadged some employees in our engagement with private sector banks. But since public sector banks generally don't have a dedicated in-house workforce for some of these processes, I do not think there will be a significant issue," Serco's Arora said.
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