India’s lenders could prevent up to 85% of loan defaults through timely borrower engagement, but most still rely on recovery-led systems that recoup barely 15–30% of dues, according to a new survey by financial empowerment platform Zavo.

Covering 2.2 lakh EMI payers across India, the survey exposes a worrying gap in the country’s loan management approach, where delays are misread as defiance rather than distress. Zavo’s data shows that 90–95% of borrowers clear missed EMIs within 90 days when offered structured support, saving lenders nearly ₹3,200 per case and improving borrower-retention rates to 85%.

“We can continue treating defaults as moral failures to be punished, or start treating them as human crises to be prevented,” said Kundan Shahi, Founder of Zavo.

He further added that, “By offering need-specific interventions from temporary restructuring during medical emergencies to cash-flow-aligned repayment plans institutions can preserve trust while protecting their own balance sheets.”

Zavo’s analysis attributes 34% of all defaults to survival-level crises: medical emergencies (18%) and job/income loss (16%) were the two biggest triggers. The study draws on Maslow’s hierarchy of needs, noting that when safety and survival are threatened, borrowers naturally prioritise essentials like food, rent, and medicine over EMIs.

Other contributing factors include poor planning, high interest costs, business setbacks, and family obligations underscoring that most defaults are temporary liquidity gaps, not willful neglect.

The survey also highlights a generational shift in repayment behaviour. Unlike older borrowers who began with structured loans, Gen-Z and first-time credit users often start their credit journeys with credit cards products designed with flexibility in mind.

Features such as minimum-due payments and rollover options have rewired expectations around repayment. For lenders, Zavo says, this calls for new credit frameworks that allow partial payments, flexible schedules, and pre-default rescue programs without diluting discipline.
 
Zavo’s study urges lenders to adopt behavioural monitoring systems that flag distress before it snowballs. Early warning signs including payment delays, partial payments, credit utilisation spikes, or increased customer-support calls can guide pre-emptive action.

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With early intervention yielding a 4× return on investment, Zavo calls the shift from punishment to partnership as both “compassionate and commercially inevitable.”