A chocolate nudge can serve a public purpose

Source: The post is based on the article “A chocolate nudge can serve a public purpose” published in “Live mint” on 19th September 2023.

Syllabus: GS3- Economy- Banking

News: The State Bank of India (SBI) is using behavioral cues and AI technology to detect potential loan defaulters. It is employing a friendly approach, like home visits with chocolates, to encourage repayments, which has shown positive results amid rising loan demands.

What new strategy is SBI using?

SBI’s New Strategy: Behavioral Cues

SBI observes behaviors of borrowers to predict potential defaults.

The bank found a strong correlation between clients ignoring reminder calls and defaulting on their loans.

As a response, if a borrower doesn’t answer calls, SBI sends an executive for a surprise visit with chocolates. This friendly approach serves as a polite reminder of their dues.

This method has successfully reduced retail loan defaults, showing its effectiveness.

SBI’s New Strategy: AI Technology

The bank has collaborated with two fintech firms to leverage AI tools.

The aim of this partnership is to help reduce loan defaults further.

By integrating technology with their strategies, SBI aims to keep defaults down in an ever-evolving banking environment.

What are its implications?

Behavioral Approach: By observing that clients who ignore reminder calls often default, SBI has found a new way to anticipate potential non-payment.

Friendly Intervention: Sending an executive with chocolates for a home visit serves as a polite memory jog. This method has proven effective in reducing retail loan defaults.

Involving Technology: SBI’s collaboration with two fintech firms equipped with AI tools suggests a tech-driven future for banking solutions and default management.

Possible Emotional Impact: While personal contact might work for many, it could exert additional pressure on those genuinely struggling to pay.

Changing Recovery Tactics: Given past industry scandals involving coercive recovery methods, SBI’s novel approach is exemplary and could inspire a change in recovery tactics industry-wide.