Intense Monitoring yields EWS
Early Warning Signals (EWS) framework focuses on all aspects r e l a t i ng to t he pr e v e nt i o n, early detection, prompt reporting to all stakeholders and timely initiation of staff accountability proceedings, wherever required without impinging bona fide risk-taking capacity of the staff.
EWS IN BANKS
Fincare Small Finance Bank has a 13-year history of managing an unsecured loan portfolio and has built portfolio resilience through a combination of high-touch and high-tech models. The ground connection with customers is key to seeing through the tough times. Besides, timely MIS, availability of actional intelligence on tab/ phone, monitoring of customer behavior, process simplicity, coordination with operations and support teams and strong leadership oversight are all mechanisms to keep the on-time repayment rate (OTRR) on track.
Rajeev Yadav explains: “Secured loans such as loan against gold, loan against property and affordable housing loans have an inherent safety measure. The bank also does institutional finance, where the credit due diligence and quality monitoring on an ongoing basis help keep portfolio performance in check.”
Govi n d S i n g h says the EWS framework specifies a series of checks for its varied product offerings. All loans above Rs 50 million are tracked every week, based on various news alerts and other industry-related developments. Any negative news related to a company or industry is discussed with the borrower. Clarifications and probable mitigation of default for the same are also shared with the borrower. The bank has a relevant process in place to review large accounts on a half yearly basis to check their recent performance trend.
The bank in fact has a slightly different approach for handling retail loans. It has a partially automated EWS where the IT MIS system provides a list of contacts that have missed their payment daily. These clients are tracked regularly by the risk and collection teams for repayment. Regularly, risk management team furnishes MIS highlighting higher delinquencies in specific regions.
For microfinance l o a ns, bank employees meet most of its customers more than twice a month. This helps in understanding any issues related to these clients well in advance rather than waiting for red flags to materialize at a later stage. At the pre-sanction stage, the bank, as part of its due diligence, collects information and market intelligence of potential borrowers independently as also details of their track record, involvement in legal disputes, raids conducted on their businesses, the authenticity of bank statement, and KYC related information, as available in the public domain.
ESAF Small Finance Bank has framed internal MIS capabilities that generate dashboards and reports indicating portfolio trends and symptoms of weaknesses in asset quality. Near to 90% of the bank loan portfolio is in the micro-segment, wherein the bank has got a very strong collection mechanism based on indicative reports from the transaction system. The remaining portion of the credit portfolio also consists of loans against deposits and gold loans, wherein default risk is zero. Other loans including retail and SME loans are of recent origin, the health of which is monitored by the bank’s internal system.
Paul Thomas says the bank’s credit monitoring and collection and recovery teams observe portfolio trends and initiate remedial actions. The credit risk team independently assesses the asset quality periodically and report to the management.
EWS IN NBFCS
Jaideep Hansraj shares the details about EWS at Kotak Securities: “We categorize stocks for collateral management based on various parameters. We generate various daily exception and control reports and based on this, we do a daily evaluation of client portfolios and limits. We evaluate on concentration build-up at the client level, at scrip level, and in specific sectors/industries. Strong front office and mid-office systems help in the implementation of these checks.”
Reliance Securities’ risk management construct is governed by a sound risk management strategy, supported by robust practices and efficient tools. The company has won the prestigious Golden Peacock Award for Risk Management in 2017.
Lav Chaturvedi says being in the stockbroking business, the company had already implemented multiple robust and state-of-the-art risk management tools long before the pandemic, which are capable of measuring and monitoring client-level risks on a real-time basis under dynamic and complex market environment and generating early warnings on a real-time basis. “This, in turn, helps us to act proactively and, thus, ensures minimal/negligible NPAs. The practice of regular review of our product offerings considering various market factors also acts as an additional layer of security,” he adds.
EWS IN INSURANCE
Future Generali General Insurance has robust fraud analytics capabilities across business segments that are mainly data driven. Anup Rau says as and when required, the company also deploys sophisticated algorithmic software to analyze large volumes of claim data, which triggers flags in case of high fraud probabilities. Teams manually analyze such cases and necessary actions are taken, he adds.