State Bank of India (SBI), the country's largest lender, has come up with an innovative strategy to ensure that people repay their loans on time. This unique approach is aimed at tackling loan defaults from retail borrowers. SBI has noticed that borrowers who are about to default on their monthly loan installments often ignore reminder calls from the bank. To address this issue, SBI is taking a more personal approach by visiting these borrowers at their homes, and here's where the chocolate comes in.

SBI has teamed up with fintech companies that use artificial intelligence (AI) to implement this creative strategy. When borrowers are identified as likely to default on their loans, representatives from these fintech firms pay them a visit, bearing a pack of chocolates as a friendly gesture. During their visit, they remind borrowers of their upcoming installments that need to be paid.

Ashwini Kumar Tewari, the managing director in-charge of risk, compliance, and stressed assets at SBI, explained, "With two fintech firms which use artificial intelligence, we are piloting a novel way of reminding our retail borrowers of their repayment obligations. While one is doing conciliation with borrowers, the other is alerting us on the propensity of a borrower to default. And to such borrowers who are likely to default, the representatives from this fintech will visit them, carrying a pack of chocolates for each of them, and remind them of the forthcoming EMIs."

SBI plans to make a formal announcement regarding the partnership.

This approach has shown promising results so far, although the bank has not yet disclosed the names of these fintech partners as the initiative is still in the pilot stage. The program started just 15 days ago, and if it continues to be successful, SBI plans to make a formal announcement regarding the partnership.

Retail lending in the banking system has been on the rise, but it has also led to an increase in delinquency levels due to rising interest rates. In the June 2023 quarter, SBI's retail loan portfolio grew significantly by over 16.46 percent, reaching ₹12,04,279 crore from ₹10,34,111 crore in the previous year. This makes retail loans the largest asset class for SBI, which has a total book size of ₹33,03,731 crore, growing at a rate of 13.9 percent year-on-year.

To further enhance their collection efficiency, SBI is exploring collaborations with other fintech companies. Tewari mentioned, "We are also talking to a few other fintechs to improve our collection efficiencies and hopefully by the end of the year, we will have formally tied up with at least half of them." The bank plans to continue the pilot program for at least four to five months.

In summary, the State Bank of India is taking a creative and personalized approach to tackle loan defaults from retail borrowers. They are collaborating with fintech companies that use artificial intelligence to identify borrowers at risk of defaulting and visit them with chocolates as a friendly reminder to repay their loans. This initiative has already shown promising results, and SBI is looking to expand its partnerships with other fintech firms to further improve collection efficiency. Retail lending is on the rise in India, making this strategy even more crucial in ensuring timely repayments and reducing loan defaults.

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