Tag: auto debit

Only 60% banks ready with new auto debit system, customers to face inconvenience, BFSI News, ET BFSI

Banking & Finance

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Bank customers are set to face disruptions in their auto debits after new RBI norms kicked in on Friday as only about 60% of banks are ready with the new system.

Private sector lenders, including HDFC Bank, ICICI Bank, Citibank, Axis Bank, IDFC Bank are ready with the new systems. IndusInd Bank, Bank of Baroda, RBL Bank and YES Bank are also set to meet the deadline.

However, public sector banks are still working on putting the new system in place.

Dashing messages

Banks are sending communications to customers saying that they will not process the recurring payments and customers will have to make payments directly to merchants. Below are some text messages received by customers:

> “Attention! From 1st Oct’21, as per RBI guidelines on e-Mandate on cards, we will decline Non Compliant recurring txn at Merchant Web/App on your Credit/Debit Card. Alternate Solution – Retry regular payment on Merchant Web/App authenticated via OTP or Pay via AutoPay in BillPay on our NetBanking for your Electricity /Water/Gas/ Landline/Postpaid mobile/Broadband/Insurance billers,” said a message to customers by HDFC Bank.

> “In compliance with the regulatory requirements, we are currently building a solution to seamlessly manage all your domestic standing instructions for recurring payments. This solution will be available soon for you. Starting October 1, any existing standing instruction for domestic and international recurring transactions on your card account will not be processed. We request you to make these payments directly to the service providers to avoid any interruptions,” American Express said in a recent message to customers.

How does the new system work?

Under the proposed system, as a risk mitigating and customer facilitation measure, the card-issuing bank will have to send a pre-transaction notification to the cardholder, at least 24 hours before the actual charge or debit to the card. While registering e-mandate on the card, the cardholder shall be given the facility to choose a mode among available options (SMS, email, etc.) for receiving the pre-transaction notification from the issuer. On receipt of the pre-transaction notification, the cardholder shall have the facility to opt-out of the particular transaction or the e-mandate. For transactions above Rs 5,000, banks will also be required to send one time passwords to customers.

What is a standing instruction?

A standing instruction is a service offered to customers of a bank, wherein regular transactions that the customer wants to make are processed as a matter of course instead of initiating specific transactions each time.

This service relates to transactions like renewing subscription to OTT platforms, newspapers and magazines, and utility bill payments.

The issue

Large lenders and payment entities including State Bank of India, ICICI, Citi, HDFC, Axis, HSBC, Visa and Mastercard had asked the Reserve Bank of India (RBI) to postpone the deadline for putting in place a new system to alert customers on ‘standing instruction’ transactions.

The banks were asked to set up the system by March 31, 2021.

The lenders also wanted RBI to exclude transactions against pre-existing standing instructions and those with international merchants from the new conditions for e-mandates on cards for recurring transactions.



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Customers to face disruption as only 60% banks are auto debit norm ready

Banking & Finance

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With the Reserve Bank of India’s new auto-debit norms coming into effect from Friday, consumers may face some disruption as only about 60 per cent of the banks are ready with a new system.

Industry experts say that most public sector banks are still working to meet the RBI requirement. For example, auto debit on State Bank of India’s debit card will go live only by mid-October while its credit card system is set up to meet the norms starting tomorrow.

Private lenders, including HDFC Bank, ICICI Bank, Citibank, IDFC Bank and Axis Bank, are ready, while others such as IndusInd Bank, Bank of Baroda, RBL Bank and YES Bank are geared to meet the deadline.

Shashank Kumar, CTO and co-founder, Razorpay, said, “In the long run, the RBI norms are good for the ecosystem and will benefit the consumer. But, in the short term, the September 30 deadline can cause a lot of confusion for existing mandates. Where the cards have not migrated to the new system or banks that have not complied, the mandates will not be processed.”

Sounding off customers

Banks and credit card companies have already sent communications to customers informing them about the changes and their state of readiness. Customers of banks, which are yet to comply, will face disruption in payment of utility bills, OTT subscriptions, etc. However, mandates for SIPs, mutual funds and EMIs, set up through bank accounts, will not be affected.

To ensure a smooth transition for customers, the Payments Council of India has requested the RBI to extend the norms for auto debit mandates for recurring transactions by one to two months.

Extension sought

“We have written to the RBI for a short extension of one or two months to ensure a smooth transition to the new norms. All ecosystem players have been working hard but it will take some more time,” said Vishwas Patel, Chairman, Payments Council of India and Executive Director, Infibeam Avenues Limited.

Mandar Agashe, Founder, Vice-Chairman and MD, Sarvatra Technologies, said, “With the new regulations, customers will now be required to re-register each of their payment instruments — be a debit or credit card or UPI for service under the recurring mandate. Post-re-registration, the first transaction will have to be executed via additional factor authentication (AFA) by approving the auto-debit request beforehand. Transactions above ₹5,000, will require OTP verification every time.”

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Retail Stress: Auto-debit bounces ease in July, still above levels before Covid

Banking & Finance

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According to data released by the National Payments Corporation of India, of the 86.47 million debit requests made in July over the National Automated Clearing House (NACH) platform, 28.74 million bounced.

The bounce rate on auto-debit transactions eased to 33% by volume in July from 36.5% in the previous month. The failure rate of such transactions, many of which are debit requests for EMIs, still remain higher than their pre-Covid levels, indicating high stress in the retail segment.

According to data released by the National Payments Corporation of India, of the 86.47 million debit requests made in July over the National Automated Clearing House (NACH) platform, 28.74 million bounced. In terms of value, the bounce rate on auto-debit requests stood at 27.35% in July, almost at par with the levels seen before the second Covid wave emerged in April.

Data from the NACH platform does not include intra-bank transactions and, therefore, do not represent all debit requests made in the financial system. EMI payments to smaller non-banking financial companies (NBFCs) and fintech lenders account for a large share of requests made through the NACH platform.

The easing of repayment stress ties in with the commentary from banks and other lenders, who reported an improvement in collections during June and July. State Bank of India (SBI) saw a slippage ratio of 2.47% in Q1FY22, due in large part to a hit to collections. Chairman Dinesh Khara told analysts that a significant amount of the slippages came from the retail portfolio, where collections are closely linked to the force of the recovery effort. “However, the good news is that in July 2021, we have been able to regain some ground and are confident that we will be in a position to pull back and see much better performance in the days and weeks going forward,” Khara said.

In the non-bank segment, stress rose in specific segments like vehicle finance, high-ticket loans against property (LAP), lease rental discounting (LRD), small and medium enterprises (SME) and microfinance, Kotak Institutional Equities (KIE) said in a note on Tuesday. Within housing loans, retail asset quality broadly held up well, though there was a marginal rise in stress in the self-employed segment.

Analysts at KIE expect the pace of recovery to be uneven across lending institutions. “Almost all companies reported a rise in collections month-on-month in July 2021. Softer bucket delinquencies are, however, likely to remain high as it will take time for customers to regularise repayments,” KIE said.

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Covid second wave: Auto debit payments bounce rate rises for 2nd month in May

Banking & Finance

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Hit by the second wave of the Covid-19 pandemic and lockdowns, stress amongst borrowers seems to be on the rise, though it is lower than what was seen in the first surge of the pandemic. Data captured by the National Payments Corporation of India from its National Automated Clearing House (NACH) platform reveals that the number of unsuccessful auto debit requests increased for a second straight month in May.

Of the total auto debit transactions of 8.57 crore in May this year, 5.49 crore transactions were successful while 3.08 crore were returned. This reflects a return or bounce rate of 35.91 per cent in May compared to 34.05 per cent in April this year.

Also read: Bounce rates of auto debit transactions rise in April

NACH bounce rates have been spiking since last month after localised lockdowns hampered economic activity. It had hit a low of 32.7 per cent in March this year while the peak was in June 2020 when the bounce rate rose to 45.3 per cent.

To help small borrowers tide over the impact of the second wave of the pandemic, the Reserve Bank of India had announced the Resolution Framework 2.0 on May 5. The RBI on June 4 expanded the coverage of the scheme and announced the doubling of the maximum aggregate exposure to ₹50 crore.

Stress among small borrowers

Many companies have begun to indicate that there is rising stress amidst small borrowers.

In a mid quarter update, Bajaj Finance said the second wave has caused a marginal increase in EMI bounce rates in the first quarter of 2021-22 versus the fourth quarter of last fiscal. “Average EMI bounce rates in the first quarter of this fiscal were approximately 1.08X of the fourth quarter last fiscal,” it said.

Equitas Small Finance Bank reported a collection efficiency of 77.84 per cent in May this year as against 105.16 per cent in April. “We will be studying the impact of stress created by the second wave on our customers and any possible restructuring they may require to help revive their livelihood,” it said in a recent statement.

Post September 2020, the bank had seen a strong pick up in collection efficiency and ended the year with March 2021 at pre-Covid level collection efficiency.

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Bounce rates of auto debit transactions rise in April

Banking & Finance

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In a worrying repetition of last year’s Covid-19 led economic distress, bounce rates for recurring transactions were elevated in April.

Data captured by the National Payments Corporation of India from its National Automated Clearing House (NACH) platform, too reveal that the number of unsuccessful auto debit requests in the month of April had once again begun to climb up after remaining low in March.

According to NPCI’s data, of the total of 8.54 crore auto debit transactions on the NACH platform in April, 5.63 crore were successful while 2.9 crore were returned. This reflects a return or bounce rate of 34.05 per cent in April compared to 32.76 per cent in March.

The rate of unsuccessful transactions in April is however, still lower than previous months like February and January when it was at a little over 36 per cent and the peak of 45.4 per cent in June 2020.

Banks watchful

The issue was also flagged by HDFC Bank in its fourth quarter analyst call when the management noted that bounce rates had begun to rise in April, which could be an indication of rising systemic stress.

Other banks too are remaining watchful about repayments and the Reserve Bank of India’s Restructuring 2.0 framework is expected to help small borrowers tide over the current uncertainty.

“Collection efficiency in April has been lower and the impact has been felt in SME and MSME segment and not so much in the salaried segment. Chances are the month of May would see a similar trend. However, this time around, there have not been any salary cuts or job losses so far in the organised sector,” noted Gaurav Gupta, CEO, MyLoanCare.in.

Analysts are hopeful that with limited lockdowns, the economic distress will not be as much as last year

“We estimate that the severely affected States account for about 48 per cent of retail credit and about 56 per cent of overall credit. Again, self-employed categories will bear the biggest brunt of localised lockdowns,” said a report by Emkay Global Financial Services.

Self-employed category

It expects that within retail assets, which constitutes about 31 per cent of overall credit, the self-employed category accounts for nearly a third – though the impact will largely be restricted to business loan, loan against property and MFI portfolio.

A recent SBI Ecowrap report also noted that NPCI-NACH debit return per cent reached a peak in June 2020 and has been on a declining trend since then. The per cent return (value terms) has declined to 27.5 per cent in March 2021 from the peak of 38.1 per cent in June 2020. Even the volume percentage declined to 32.8 per cent from 45.4 per cent during the same period.

“With various restrictions at State and district level imposed during April, it is yet to be seen whether it affects the recurring payments going forward,” it however said.

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Auto-debit bounces ease in March, but stay above pre-Covid levels

Personal Finance

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Bounce rates of anything above 25% remain a cause for concern as it shows retail delinquencies remain well above pre-Covid levels.

The failure rates of auto-debit transactions on the National Automated Clearing House (NACH) platform, many of which are EMI requests, eased in March, showed data released by the National Payments Corporation of India (NPCI). However, at 32.73% in volume terms, the bounce rate remained well above pre-Covid levels, raising concern about lenders’ asset quality after the lifting of an interim judicial stay on recognition of bad loans after August 31, 2020.

The share of unsuccessful auto-debit requests in volume terms eased from 36.65% in February. In value terms, the bounce rate in March – 27.48% – remained at nearly the same level as in the previous month. Bankers have been insisting that the high bounce rates are due in large part to defaults at fintech lenders, whose collections are still below pre-Covid levels. Listed banks and non-bank lenders will start reporting their Q4 results this Saturday.

Bounce rates of anything above 25% remain a cause for concern as it shows retail delinquencies remain well above pre-Covid levels. Analysts will be closely watching lenders’ non-performing asset (NPA) numbers as these will be the first set of quarterly results after the Supreme Court (SC) allowed banks to resume recognition of bad loans as per income recognition and asset classification (IRAC) norms.

Non-banking financial companies (NBFCs) have already started to bear the brunt of a resurgence in Covid-19 infections. In a report on Wednesday, rating agency Icra said that asset quality pressures would play out fully in FY22 as the level of economic activities is yet to substantially pick up over pre-Covid levels, with risks further compounded by the recent rise in the infection rate. “While NBFCs can proceed with the overdue recoveries post lifting of the Supreme Court order on the NPA classification in March 2021, ICRA notes that performance of most of the key target asset/ borrower segments continues to be sub-optimal, which would impact realisations leading to higher loan losses,” the report said.

Earlier this month, Fitch Ratings said that asset quality concerns remain since banks’ financial results are yet to fully factor in the first wave’s impact and the stringent 2020 lockdown due to the forbearances in place. “We consider the micro, small and medium enterprises (MSME) and retail loans to be most at risk. Retail loans have been performing better than our expectations but might see increased stress if renewed restrictions impinge further on individual incomes and savings,” Fitch said.

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Auto debit rule: New deadline is September 30

Banking & Finance

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In August 2019, RBI had issued a framework for processing of e-mandates on recurring online transactions. Initially applicable to cards and wallets, the framework was extended in January 2020 to cover Unified Payments Interface (UPI) transactions as well.

After much hand-wringing by banks and payment companies over the March 31 deadline for activating the additional factor of authentication (AFA) framework for auto debit transactions, the central bank relented on Wednesday. The new deadline for implementing the framework has been set at September 30, 2021.

The Reserve Bank of India (RBI) made its displeasure with system players clear and said it would issue a circular on penalties for non-compliance. “This non-compliance is noted with serious concern and will be dealt with separately. The delay in implementation by some stakeholders has given rise to a situation of possible large-scale customer inconvenience and default,” RBI said, adding that the deadline is being extended solely to prevent inconvenience to customers.

“Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action. A circular advising the above is being issued by the Reserve Bank today,” the central bank said.

In August 2019, RBI had issued a framework for processing of e-mandates on recurring online transactions. Initially applicable to cards and wallets, the framework was extended in January 2020 to cover Unified Payments Interface (UPI) transactions as well.

The requirement of AFA has made digital payments in India safe and secure, RBI said. In the interest of customer convenience and safety in use of recurring online payments, the framework mandated use of AFA during registration and first transaction (with relaxation for subsequent transactions up to a limit of Rs 2,000, which was later enhanced to Rs 5,000), as well as pre-transaction notification, facility to withdraw the mandate, etc.

“The primary objective of the framework was to protect customers from fraudulent transactions and enhance customer convenience,” RBI said. This is the second time the deadline is being extended on the insistence of banks. Earlier, based on a request from the Indian Banks’ Association (IBA) for an extension of time till March 31, 2021, to enable the banks to complete the migration, the regulator had advised the stakeholders in December 2020 to migrate to the framework by March 31, 2021.

Banks were all set to miss the March 31 deadline, with some of them having already sent communications to their customers telling them that auto debits from debit and credit cards will be disabled with effect from April 1, 2021. They have requested customers to make recurring payments through the websites of the respective service providers. This may still go through for banks who have already begun to migrate to the new framework. Most customers, though, can breathe easy for the next six months, industry experts said.

Some experts believe the AFA framework involves a playoff between security and convenience, a balance the industry is struggling to strike. Fintech expert Parijat Garg was of the view that the RBI guidelines in their current form are focused more on security than convenience and they might make things more challenging for people who are now habituated to the convenience of auto debits. “Part relief is for the auto-debit transactions of up to Rs 5,000, which should cover large proportion of such transactions. A better approach would have been to ensure stricter security and privacy responsibilities which will come through data protection laws as well on players who are responsible for storing this information and using it, and possibly putting in more guidelines around tokenisation,” Garg said. He added that right now, the concern is around the card information being stored and getting leaked as has been seen in some recent instances, where the consumer’s data was put to risk and the organisations liable for them did not face any action.

Payments Council Of India (PCI) chairman Vishwas Patel told PTI on Tuesday, “All the ecosystem players, be it banks and payment gateways, are guilty of not taking RBI directive seriously from 2019 and not being able to come on a single platform, which we should have done at least a couple of months back, so that there could have been a smooth transition to the new way of doing recurring transactions.”

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