Loan Recovery Gets an AI Push as Banks Turn to Virtual Agents

Banks in India are giving debt collection a technological twist by using artificial intelligence (AI) to recover overdue loans. Several private lenders have begun deploying AI-powered virtual agents, designed to look like lawyers in formal business attire, who call borrowers through video links and firmly remind them of missed payments; Business Standard reported.

Executives say this approach has proved to be both efficient and cost-effective. Unlike human recovery agents, who typically earn around ₹30,000 a month and manage about 250 cases, AI agents can make up to twenty times more calls while being 40 to 60 per cent cheaper. They are also available round the clock, which makes it easier to connect with borrowers. Banks report resolution rates of 80 to 85 per cent in the first thirty days of missed payments, especially for personal loans and vehicle loans.

Most lenders are adopting a blended model. AI avatars handle the early reminders through video calls or text messages, while human agents step in for more difficult cases. Service providers such as Credgenics, Oriserve and Sarvam AI are already powering these systems. Credgenics, for example, says its bots are supporting private banks including ICICI Bank, HDFC Bank and Yes Bank, as well as finance companies like L&T Finance.

Public Sector Banks(PSBs) have not yet introduced this model, but many are exploring the idea through the PSB Alliance. At present, they either outsource collections or depend on in-house staff supported by technology.

The rise of AI in loan recovery also highlights the importance of following regulatory guidelines. The Reserve Bank of India has made it clear that recovery agents cannot call borrowers before 8 A.M. or after 7 P.M., must not harass or intimidate them, and are strictly prohibited from actions that humiliate or invade their privacy. To meet these requirements, AI avatars are programmed to remain polite, even while adopting a firm tone.

This shift could reshape the way loans are collected in India. While banks see AI as a cheaper and more reliable alternative, questions remain about how borrowers experience these virtual interactions and whether they might feel pressured by lawyer-like avatars. The balance between efficiency, empathy and compliance will ultimately decide how widely the technology spreads across the financial sector.