The banking and financial services sector is witnessing a notable shift. As stress escalates in the retail lending segment, particularly in unsecured loans, the demand for recovery agents has surged dramatically. Banks, grappling with increasing loan defaults, are turning to outsourced recovery services and even redeploying sales staff to manage collections. This trend highlights a growing unease within the financial system concerning the burgeoning portfolio of unsecured loans.

Loan Delinquency on the Rise

Data reveals a significant jump in the number of recovery agents employed in the BFSI sector. TeamLease Services reports a near 50 per cent increase in recovery agents between July and December 2024. This surge directly correlates with the rise in unsecured loans, such as credit cards and personal loans, and the subsequent increase in delinquency rates. The Reserve Bank of India (RBI) has also voiced its apprehension about this trend. In its annual report, ‘Trends and Progress of Banking in India 2023-24’, the RBI flagged concerns about rising delinquency and leverage in unsecured loans, urging increased vigilance. Unsecured loans now constitute a significant portion of banks’ credit portfolios, reaching 25.3 per cent by March 2024.

Recovery Agents – A Hot Job Now

The escalating demand for recovery agents signals a crucial change in the financial landscape. Banks that were previously focused on sales roles are now keenly seeking collection profiles. This shift is not just about numbers; it reflects a strategic pivot within banks to aggressively manage and recover soured loans. A private sector bank official noted a ‘significant surge’ in demand for recovery agents in the last six months, particularly in urban areas, where unsecured lending for consumer durables, personal loans, and credit cards is more concentrated. This demand is pushing up pay for recovery agents, making it a ‘sought-after segment’ even within banks.

Banks Shift Focus to Collections

The increased reliance on recovery agents underscores a broader concern: are banks simply treating the symptom rather than addressing the cause? While recovery is essential, the focus on collections suggests a reactive approach to a potentially deeper problem. The RBI’s move to introduce stricter norms, mandating higher risk weights for unsecured personal loans and credit cards in November 2023, indicates a proactive measure to curb potential risks. However, the continued surge in demand for recovery agents suggests that the underlying issues of loan defaults and potentially aggressive lending practices need closer scrutiny.

Is the BFSI sector heading towards a future where recovery becomes as crucial as lending itself? For now, the demand for recovery agents is a clear indicator that banks are bracing for tougher times, and perhaps, a more cautious approach to unsecured lending may be on the horizon.