In a bid to keep bad loans in check, State Bank of India is now trying a new collection model that allows borrowers to pay back on a daily instalment basis. SBI has started offering this loan product to cab hailing service company Olacabs.
This is a departure from the existing loan servicing model where borrowers repay by way of equated monthly instalments.A tad cheaper
Under the tie-up, cab owners associated with Olacabs can avail themselves of car loans from SBI on a preferential basis, with faster loan turnaround time. Since repayments will be on a daily basis, the loans could come a tad cheaper. Each time the driver makes a payment to Olacabs, a part of it will automatically go to SBI towards loan servicing, through Olacabs’ pre-paid wallet.
According to B Sriram, Managing Director & Group Executive (National Banking), SBI is increasingly trying to push risk mitigated products within the small and medium enterprises segment. Through the daily collection cycle, the bank’s officials will be able to keep track of the borrower’s financial situation.
Any break in the daily collection cycle will serve as an early warning signal and the bank can quickly intervene and resolve the matter, ensuring that the loan does not become non-performing.Other advantage
The other advantage is that the bank can lower the margins and spreads (over the benchmark lending rate) because the cost of such a loan is lesser.
“It (such a product) becomes attractive for the customer (due to lower interest rates), it becomes attractive for the bank because we don’t have too much follow-up to do and technology takes care of the rest,” said Sriram. SBI will be running a pilot of this daily collection loan product in three places – Bengaluru, Ranchi and Guwahati.
These loans will be covered under the Credit Guarantee Fund Trust for Micro and Small Enterprises. Under the cover, if a borrower fails to discharge his liabilities to the lender, the Trust makes good the loss incurred by the lender for up to 85 per cent of the credit facility.