Collections and Recovery
What is Collections and Recovery?
Collections and Recovery is the banking process used when:
- a customer does not repay borrowed money on time
- loan EMIs become overdue
- credit card dues are unpaid
- debts become delinquent
The bank then:
- reminds the customer
- follows up for payment
- collects overdue money
- recovers bad loans
Applicable Accounts
Collections and Recovery mainly applies to:
1. Loan Accounts
Examples:
- Home loan
- Personal loan
- Car loan
- Education loan
- Business loan
Reason:
- Customer has borrowed money from the bank
- Bank expects repayment with EMI/interest
If payment is missed:
- Collection process starts
2. Credit Card Accounts
Examples:
- Unpaid credit card bills
- Minimum amount overdue
Reason:
- Customer used bank credit
- Payment is pending
Bank performs:
- reminders
- penalties
- recovery follow-ups
3. Corporate Loan Accounts
Examples:
- Business loans
- Corporate borrowing
- Working capital loans
- Cash credit accounts
Reason:
- Companies owe money to the bank
If repayment fails:
- recovery/legal process may start
Usually NOT Applicable To
Savings Accounts
Normally:
- no repayment obligation exists
So collections/recovery is usually not needed.
Example:
- Your salary savings account
Current Accounts
Normally:
- used for transactions only
No loan exists unless:
- overdraft facility is attached
Fixed Deposits (FDs)
FDs are:
- customer deposits into the bank
Bank actually owes money to customer.
So collections process is not applicable.
Nostro Accounts
Nostro accounts belong to:
- banks themselves
Used for:
- international settlements
Collections/recovery is not applicable.
Simple Understanding
Collections & Recovery applies wherever:
The customer owes money to the bank.
Quick Summary Table
| Account Type | Collections Applicable? | Reason |
|---|---|---|
| Savings Account | Usually No | Customer deposit account |
| Current Account | Usually No | Transaction account |
| Loan Account | Yes | Customer borrowed money |
| Credit Card Account | Yes | Payment due to bank |
| Corporate Loan Account | Yes | Business owes bank |
| Fixed Deposit | No | Bank owes customer |
| Nostro Account | No | Bank-owned settlement account |
One-Line Memory Trick
Collections & Recovery works mainly on accounts where the bank has given money and expects repayment.