NPA’s and Role of Technology to contain it
Growing Non-Performing Assets (NPAs) is one of the biggest hurdles that banks are facing globally, especially Indian Banks. In a situation like this, where the economy is going through a slowdown, it is but obvious for certain individuals and companies being unable to repay loans and being pushed into this category. However, once the economy recovers, the repayment capabilities of individuals and companies will be back and the phenomena will see an alleviation. But, this is not as simple as it sounds. Major macro-economic factors that aggravate NPAs for banks are not directly controllable. Banks need a solution to keep NPAs in check, irrespective of the economic situation. In short, Banks needs an NPA management solution to efficiently manage their loan accounts, which is curative as well as preventive.
There are many technological solutions available, which can be classified as Priori Solutions, which curb NPA formation and Posteriori solutions, which help banks manage existing NPA solutions. Priori Solutions
Automated Loan Decision Making
Loan decisions are based on a similar set of data- credit history, demographics, risk probability etc. By automating the decision making for extending credit, banks can greatly reduce the mundane work associated, save time, ensure the accuracy of decisions and eliminate human errors in the process. Big Data Predictive Methodologies can efficiently process large volumes of data and consider n number of factors in decision making, which is beyond human computation capabilities. A set of well-defined rules, verified for accuracy with an inbuilt feedback loop and exception handling will be capable to make the most difficult judgments related to loan approvals and help curb NPAs in future.
Early Warning System
A set of guided processes that can help identify risks at a primitive stage for a bank, can be called an EWS. An EWS can help a bank monitor and control its assets tightly, reduce the probability of defaults, reduce the loss of defaults etc. Any standard EWS will track various indicators like financial (late payment, sudden overdraft etc.), behavioral (suspicious responses, manipulation of facts etc.), external (exchange rate change, new regulations, market changes etc.) and raise red flags for any sudden value change in these indicators. This will help the bank to be better prepared in tacking the situation. Posteriori Solutions
There are various technological solutions which help identify default based on regulations set, devise targeted collections strategy in case of a default (depending on customer segment), dashboards and scorecards for monitoring, resource planning for collection, programs for corporate defaulters etc. Banks closely monitor NPA levels, however, credits granted to a customer are spread across the disparate system. This prevents banks from having a customer level view for NPA which is critical from its management standpoint.
Technological advancements are definitely helping banks do a better job at NPA management, but there is a long way to go before banks get rid of the NPA menace. A holistic solution will be one that enables banks to automate the entire process of NPA management (prevention and cure). It should also lie outside the transactions system of banks for security and yet provide banks a customer level view of NPAs. In short, a scalable and extensible solution is yet to be designed, that dynamically responds to changes in regulations and can be seamlessly integrated with other systems.