Adventures in Banking - Recovery in Small Agricultural Loans

Around the year 1988, ie nearly 40 years ago, soon after completion of probation two of us (colleagues and batch mates) were sent on a short 15-day assignment to a bank branch specializing in making agricultural loans. Our mandate was to prepare insurance claim forms for loans which had gone bad (DICGC Claims). The branch had a huge back-log of DICGC claims to be filed and the work was to be completed in mission mode.

The situation was quite bad, with a massive number of small loans in which no repayment was coming or expected to come. The received wisdom being that making small agricultural loans was a sheer waste of resources – and at best a kind of charity. Under manual accounting systems, details of each loan (name of the borrower, address, amount disbursed, interest charged, repayments etc.) was maintained in physical ledgers. When loans went bad the details were transferred to another ledger which are designated as PB&RD (Protested Bills & Recalled Debts) ledgers, which was designed to have some additional details. Since there were hardly any repayments, instead of transferring individual account details to the PB&RD ledgers the original ledgers were classified as PB&RD ledgers. Logical and fine.

While preparing the DICGC claims we came across instances in some of the ledgers where there had been repayments in nearly all loan accounts, albeit small amounts, around the same time frame.

Being young and curious, even though it was much outside the purview of our mandate to prepare the DICGC claim forms, we tried to find out what had triggered these repayments. The explanation turned out to be very simple. All that the concerned Field Officer or most likely his assistant had done was to send out reminder notices by way of pre-printed Post Cards to all the loanees whose details were available in a particular ledger. Cost of each PC was I think Rs.0.15 at that point of time. The recovery in each of the account was in the order of Rs.20 to Rs.50.

Credit Lesson 103: No security enforcement, no legal hassles, no convoluted lengthy recovery measures. Just plain and simple follow-up with minimal exertion. Not even a physical follow up was done in getting these recoveries.

PS: Over a 3-week period we ended up preparing over 3,000 claim forms, each of us averaging 80-90 forms a day. Initially, we are advised by the branch officials (Field Officer and Rural Development Officers), who were primarily responsible to make the claim forms, that filling up the forms accurately was fiendishly complex exercise and we would be lucky if we could fill up 3-5 forms in a day. This advise was taken at face value, but in a couple of days, once we got a hang of the job, our output increased substantially. Then the same guys came and advised that in case of mistakes, the entire lot would be rejected by DICGC and all our effort and the bank’s expense would go waste - and so there was no need for us to be proud of our output.

The proof of the pudding is in eating it. After we had completed the exercise, the data from the physical forms were digitized by the local computer center (Purnea).  Thereafter, my colleague who was involved in preparing the forms along with me, got an opportunity to carry the computer tapes for submission forms to the DICGC office in Bombay. He not only submitted the forms but hung around for a couple of days, got the insurance claims processed by them, and collected the cheque for the full claim amount. I still remember the triumphant smile on his face when he returned with the claim amount. The feeling of satisfaction of a difficult assignment well-completed was immense.