The banking sector in India is over-burdened with the broadening concerns around Non-performing assets (NPAs). As a result, these rising bad loans seem to be swallowing away huge profit margins of financial institutions. A major reason behind pushing borrowers in the NPA category could be identified as the stressed macroeconomic conditions.

Considering this state, what do banks have to do? The foremost action required from banks is to manage the present loan book effectively and be more cautious in lending new loans. Banks need to have a ‘customer view’ so that they may identify “bad” customers and do not continue to offer them loans. For analysing, calculating and verifying the NPAs levels in a bank, both manpower and other key resources are utilised.

This can be highly time-consuming and prone to errors. Technology, on the other hand, can help automate the total loan origination system in banks and keep a track of borrowers’ repayments, thus preventing the occurrence of NPAs.

Banking Automation – Key to Control NPAs

automation in npa

Banks must consider automating their entire processes to generate reports to be submitted to regulators, monitoring potential delinquencies and disbursing loans.

  • Early Warning Systems to flag non-performing accounts can be utilised.
  • Analysis of repayment capacity can be practised to offer flexible payment choices.
  • The root cause analysis behind the occurrence of NPAs can be identified.
  • Required changes in credit policy, product promotions etc. can be implemented.
  • Complete case management (legal lawsuits) can be done from within the tool.

All this and more can be achieved through correct use of technology and automated systems. However, while choosing an automated NPA mitigation tool, a thorough check on its extendibility and scalability must be done in order to secure maximum outputs.

While technology will certainly not waive off NPAs in the financial institutions all at once, it can prove to be a crucial step in tracking and monitoring bad loans in the long run. This will enable maintaining an overall asset quality, having a sound credit policy and profitability.

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