Tag: auto-debit transactions

October bounce rates for auto-debit transactions at pre-Covid level

Banking & Finance

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Bounce rates for auto debit transactions touched pre-Covid levels in October this year indication lower stress amongst borrowers with the opening up of the economy.

The bounce rate or percentage of unsuccessful auto debit transactions in October 2021 was 31.2 per cent, according to data with the National Payments Corporation of India from the National Automated Clearing House (NACH).

This is the lowest level since January and February 2020 when the bounce rate was 31.04 per cent and 31.46 per cent respectively.

Overall, of the 8.65 crore auto debit transactions presented on the NACH platform in October, 5.95 crore or 68.8 per cent were successful while 31.2 per cent were returned.

NACH is a web based solution to enable interbank, high volume, electronic transactions which are repetitive and periodic in nature. Typically, auto debit transactions are for recurring payments such as EMIs and insurance premium although it does not capture intra-bank transactions.

The bounce rate for these transactions has been gradually coming down since July this year after it peaked to 36.5 per cent in June during the second wave of the pandemic and local State level lockdowns that hampered economic activity.

Significantly, the volume of auto debit transactions has also increased from just 7.77 crore in January last year, which declined to 6.4 crore in May 2020.

Most banks and NBFCs have reported improved collection efficiency, at pre-Covid level for many, in the second quarter results.

Earlier this month, Mahindra Finance reported that in October 2021, its collection efficiency was at about 91 per cent. While this was lower compared to the second quarter of the fiscal, it is ahead of October 2020 collection efficiency of 89 per cent, it had said.

Similarly, CreditAccess Grameen said collection efficiency excluding arrears improved to 93.3 per cent in the second quarter of the fiscal and further to 94.3 per cent in October.

“Market feedback and collection efficiency reported by a few lenders suggest normalisation kicking in with improvement in collection efficiency from mid-June once there was easing of restrictions and lockdowns,” said a report by ICICI Securities early last month.

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EMI bounces ease in December, shows NACH data

Banking & Finance

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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.

The failure rates of auto-debit transactions on the National Automated Clearing House (NACH) platform, many of which are EMI requests, eased in December, showed data released by the National Payments Corporation of India (NPCI).

The share of unsuccessful auto-debit requests in volume terms stood at 38.09% in December, as against 40.5% in November. In value terms, the bounce rate in December eased to 29.18% from 31.13% 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.

The NACH data showed that of the 84.04 million debit requests for Rs 81,576 crore worth of payments made in December, 32 million requests for Rs 23,809 crore were declined. Bounce rate of anything above 25% is a cause for concern as it shows retail delinquencies remain well above pre-Covid levels.

Analysts said that while bounce rates in value terms have improved over the last few months, in terms of volumes they are persistently high. Anil Gupta, sector head – financial sector ratings, Icra, said, “This shows that smaller ticket-size borrowers are finding it harder to make repayments, as compared to larger ticket borrowers. This trend has been continuing ever since the moratorium was lifted.”

At the same time, asset quality is being closely watched as slippages could soar once the Supreme Court bar against recognition of post-August 31 bad loans is lifted. In a recent report, Emkay Global Financial Services wrote that proforma slippages are likely to be optically elevated in Q3 due to the spillover from Q2 and the elapsing of the 90-day period after the end of the moratorium. “…but our discussions suggest that overall NPA (non performing asset) formation as well as restructuring proposals are meaningfully lower than expected though one needs to be watchful of the tail-end risk,” the broking firm said.

Stress remains elevated in products such as commercial vehicle (CV) loans, credit cards and microfinance loans. Stress on non-bank lenders’ books could also perk up in the December quarter as the quantum of restructuring by them has been limited, Emkay said.

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