Several financial institutions in India have begun using artificial intelligence (AI) to collect loan arrears. According to a report, customers who miss their loan payments are likely to receive a video call from an AI-generated avatar dressed as a lawyer with the sole purpose of completing the repayment.

Key Highlights

• AI-powered virtual agents are automating loan recovery processes, reducing costs and improving efficiency in debt collection.
• Banks are leveraging AI to enhance customer engagement, providing timely reminders and personalized repayment options. 

AI is more efficient and cost-effective

Executives claim the change has resulted in cost savings and increased efficiency. According to the report, the AI avatars, which are often dressed in sharp business attire, use a firm tone and legal language to nudge customers into making repayments during the call.

At the same time, they are programmed to be polite and avoid crossing boundaries, which can be risky for their human counterparts. Furthermore, AI's ability to work continuously makes it more effective at connecting with borrowers than humans.

A human recovery agent typically costs ₹30,000 per month and manages approximately 250 cases. However, an AI agent can make up to 20 times more calls while costing 40-60% less. Resolution rates range from 80 to 85 percent, especially in the zero-to-30-day delinquency window, which primarily affects personal and commercial vehicle loans.

A bank executive stated that most banks use a combination of these products, with AI-generated video calls and text messages sent to customers who have missed their repayment, followed by visits by human executives in difficult cases.

PSBs yet to adopt the model

Although public sector banks (PSBs) have not yet implemented such tools, they are starting to investigate them. According to the industry executive, most lenders outsource their collection operations, while those that manage them in-house rely on specialised firms for technical support. Credgenics, Oriserve, and Sarvam AI are among the industry's leading service providers. According to the report, state-run banks are also evaluating similar solutions via the PSB Alliance.

The shift could alter the debt recovery landscape. According to the news report, Rishabh Goel, co-founder and CEO of Credgenics, stated that the company's advanced virtual collection bots are already assisting leading private banks such as ICICI Bank, HDFC Bank, and Yes Bank, as well as NBFCs such as L&T Finance, in reminding borrowers about upcoming or overdue payments.

Also Read: Human+AI Collaboration in Debt Collections and Customer Retention

Focus on regulatory adherence

Lenders remain concerned about compliance, ensuring that AI agents operate within regulatory boundaries. According to the Reserve Bank of India (RBI) guidelines, financial institutions and their recovery agents:

• Cannot call borrowers before 8 a.m. or after 7 p.m.
• Must not engage in any intimidation or harassment, whether verbal or physical.
• Are prohibited from taking actions that publicly humiliate or invade the privacy of borrowers or guarantors.