Recovery agents are in demand as banks' unsecured loan stress rises

With a rise in stress in banks’ retail lending business, primarily unsecured loans, there is an increasing demand for collection and hence recovery agents. In addition, banks are also increasingly deploying sales staff for recovery. These activities are mostly outsourced by commercial banks.

 

In July 2024, the total strength of outsourced staff in the BFSI (banking, financial services, and insurance) space was 77,000, out of which 6,000 were recovery agents. By December 2024, the number of recovery agents had grown by almost 50 per cent. Out of 82,000 total outsourced staff as of the end of December, 8,800 were recovery agents, according to data from TeamLease Services. 

 

“Unsecured loans have gone up, and the resultant delinquency rates have also increased, due to which demand for collection profiles in the retail lending space, specifically unsecured loans like credit cards and personal loans, has increased in the past six months.

 

Some of our clients, who have been asking us for sales-related roles, are now showing interest in collection roles,” said Krishnendu Chatterjee, vice-president and business head, TeamLease Services.

 

In the annual “Trends and Progress of Banking in India 2023-24”, the Reserve Bank of India (RBI) raised concerns about the rise in delinquency and leverage in unsecured loans, and called for higher vigilance. The share of unsecured loans in total credit given by scheduled commercial banks had grown steadily since March 2015, touching 25.5 per cent by March 2023 before easing slightly to 25.3 per cent a year later.

 

In November 2023, the RBI also introduced stringent norms mandating higher risk weights for unsecured personal loans, credit cards, and lending to NBFCs (non-banking financial companies) by 25 percentage points to prevent the build-up of potential risk in these segments.

 

“There has been a significant surge in demand for collection (recovery) agents in the last six months as the credit environment has turned challenging for unsecured segments, mainly consumer durables, personal loans, and credit cards. The demand for these agents is more in urban areas,” said an official from a private sector bank.

 

In the three-month period ended September 2024 (Q2FY25), most private sector banks reported significant slippages into non-performing assets (NPAs) from unsecured loans like credit cards.

 

“For the last few months, stress in unsecured lending has increased in banks, due to which demand for collection sources has increased in the last six months. Collection agents are outsourced, and these agencies are also deploying their manpower more into banks where they get better remuneration, which is driving up pay for these agents. Even internally, within banks, this is a sought-after segment,” said another banker from a mid-sized private bank, who did not wish to be named.

 

“We are witnessing an increase in demand for collection agents. In the last six-eight months, the demand for collection agents has gone up by 26 per cent compared to the previous year. This is a steep rise, considering collection headcounts have always remained flat or marginally increased in previous years. Although there has been a 46 per cent increase in absolute terms during July-December 2024, it is also due to an increase in the overall base and additional mandates for recovery agents, with a few more in the pipeline,” Chatterjee added.

 

“In general, there has been a bit of a slowdown in retail lending by banks and NBFCs because of a rise in delinquencies. Clearly, the focus has shifted to collections. A lot of banks and NBFCs have either strengthened their collection teams or are using technology to focus more on certain delinquent borrowers,” said Karthik Srinivasan, senior vice-president and group head, Financial Sector Ratings, ICRA.