US debtors boost Indian outsourcing

By Joe Leahy in Mumbai

Published: August 14 2008 19:14 | Last updated: August 14 2008 19:14

The declining fortunes of the consumer in the US, and increasingly the UK, are proving to be a boon for India's outsourcing industry, with some leading operators gearing up to increase the size of their debt collection and recovery units.

Firstsource, an Indian business process outsourcing company that handles credit recovery for most of the top five US banks and half the top 10 credit card issuers, said it was increasing staff numbers to win business from growing credit card defaults in both national markets.

"There is more demand for that service. If I could add 100 people today, overnight, I would do it," said Ananda Mukerji, Firstsource chief executive, in an interview with the Financial Times. Overdue accounts at the six large US credit card issuers increased in June on the back of rising unemployment, food and fuel prices.

Loans on which repayments were more than 30 days late increased five basis points to 4.03 per cent, after falling for two months as hard-hit consumers used tax rebates to try to reduce their debts, according to Bloomberg data.

The worst affected issuer in June was American Express, with loans overdue by 30 days rising 16 basis points to 3.21 per cent. Firstsource is predicting the situation will also worsen in the UK.

Market research conducted by the company and released last month showed that 22 per cent of consumer credit managers who responded to a survey reported increased write-offs in the past 12 months.

Firstsource said its staff for conducting collections in the US alone had risen from 250 when it started the business in 2004 to 600, while revenue from collections had risen from $20m to $50m in about three years.

Indian outsourcing companies offer collection services by stationing people in the US and India. Firstsource specialises in accounts that are 90-180 days overdue, with its staff making phone calls and writing letters to defaulters.

The post-360 days overdue work, which often involves legal action against defaulters, is performed by other agencies with a greater local presence.

"We have seen some ramp-up on the collection side," said Amitabh Chaudhry, chief executive of Infosys BPO, a unit of India's second-largest computer services outsourcing company.

He said debt collection was one of the areas helping to balance a slowdown elsewhere in the outsourcing industry, such as the business of processing mortgages from western clients.

However, while there was more bad debt, the deepening credit problems of the US consumer were also making it harder to collect.

The liquidation rate – the amount of revenue realised from collecting on bad debt portfolios – had fallen by 15-20 per cent.

Firstsource's Mr Mukerji said: "There are more credit card outstandings being defaulted on today than there were a year back, so that's a growth opportunity for us and we are adding people in the business right now. But the profitability is lower because it is harder to collect today than it was a year back."

Copyright The Financial Times Limited 2008