DIGITISATION EASES COLLECTIONS

In earlier times, loan collections were mostly handled by agents who visited borrowers in person. However, with the rise of digitisation, the landscape of loan recovery has seen a significant transformation—greatly benefiting both lenders and borrowers. Especially during the COVID-19 pandemic, digital processes helped minimise the physical impact of collections.

Yet, it is not just digitisation that influences collections—it is also the state of cash flows. Lockdowns and movement restrictions led to a disruption in income streams, impacting borrowers’ repayment capacities. Several Small Finance Banks (SFBs) responded proactively by implementing measures to tackle these disruptions. For example, some banks began preponing EMI payments during festivals or holidays, but only with the customer’s consent. This helped borrowers manage their cash flow better while ensuring the bank maintained its collection targets.

Today, nearly 80%–90% of loan collections are completed in advance. Banks even pass on the interest earned from such advance collections back to the customers, making the repayment process more appealing. The game-changer in all this has been the adoption of digital tools. Cashless payment methods such as UPI (Unified Payments Interface) have been widely adopted. However, uptake in rural and semi-rural regions remains relatively low due to a lack of awareness or trust in digital systems.

Some SFBs focus exclusively on the MSME (Micro, Small, and Medium Enterprises) sector. These businesses are often unaffected by festivals or strikes but were hit hard by lockdowns that disrupted supply chains and reduced sales. In response, SFBs have taken the initiative to understand the issues faced by MSMEs and worked out flexible repayment solutions, helping customers avoid default and maintain their creditworthiness.

Collections typically get affected during major events such as festivals, school fee cycles, marriages, lockdowns, medical emergencies, job losses, and even deaths. While some events are predictable, others catch borrowers and lenders off guard. This is where modern technology truly shines.

The Role of AI/ML in Collections

Intelligent collection systems powered by AI (Artificial Intelligence) and ML (Machine Learning) can now analyse customer behaviour, transaction patterns, geography, profession, and even societal events to predict repayment ability. These systems have matured significantly, with programmer-friendly tools now widely available to fintechs and NBFCs (Non-Banking Financial Companies).

Some lenders use AI to schedule EMI payments in advance with customer consent, thereby improving both planning and customer experience. These systems can also collect real-time responses through calls or face-to-face visits and log them into software, offering deeper insights into a borrower’s repayment behaviour.

NBFCs using such systems have reportedly seen better collection outcomes compared to previous years. They can now assess creditworthiness through multiple data sources, including CIBIL scores, transaction history, and even social media activity—helping them create more personalised offerings and repayment solutions.

Mobile-Based Platforms and Real-Time Collections

During the pandemic, some lenders leveraged mobile-based platforms and fintech partnerships to enable real-time collections. These platforms allowed instant receipt generation and brought immense convenience to all stakeholders. In fact, fintech-led digitisation has enabled financial institutions to keep track of repayments, identify red flags early, and take corrective action proactively.

Moreover, many lenders conducted phone surveys during the pandemic to gauge the ground reality of their customers’ financial situation. This helped them anticipate portfolio stress, prepare restructuring plans, and take advantage of government-backed MSME restructuring schemes.

Despite these advances, digital loan collections still make up only a small portion of the total collections across India. The potential for growth is massive, especially with rising smartphone penetration and digital literacy.

Future of Digital Collections

Payment gateways are playing a pivotal role in expanding digital collections. With features that allow customers to pay through UPI, NEFT, RTGS, and IMPS, these gateways offer flexible options for various customer segments. Additionally, AI-based systems can now initiate reminders or even auto-debits based on customer behaviour and historical preferences. This not only improves collection efficiency but also strengthens customer relationships.

As India continues its journey towards becoming a digitally empowered economy, the adoption of cashless collections is set to rise exponentially. With smart integration of AI, mobile tech, and customer-focused strategies, NBFCs and banks are well-equipped to navigate future uncertainties while ensuring financial inclusion.

Vivekanand Business School’s Perspective on Financial Innovation and Digitisation

At Vivekanand Business School (VBS Mumbai), we place a strong emphasis on understanding real-world financial ecosystems, including the shift toward digital finance and fintech-powered banking. Through our Vivekanand PGDM program, students explore subjects like AI/ML in finance, digital payments infrastructure, and MSME financing—equipping them with practical skills to succeed in today’s evolving landscape.

Whether it’s understanding the complexities of digital loan collections, building predictive models for risk analysis, or exploring financial inclusion via fintech, VBS ensures students are future-ready. Students enrolled in specializations such as PGDM in Banking and Finance, and PGDM in Business Analytics, get hands-on exposure through simulations, live projects, and expert-led workshops.

Being among the best PGDM colleges in Mumbai, VBS focuses not only on theoretical concepts but also on industry-driven learning. This approach empowers students to understand macroeconomic impacts, customer behaviour patterns, and technological disruptions shaping today’s financial institutions.

With global exposure opportunities, an active FinTech & Finance Cell, and a strong industry mentorship ecosystem, Vivekanand Business School is grooming the next generation of leaders in finance and banking.

— Prof. K. V. Ramkrishnan