Tag: Bounce rates

Auto debit transactions: Bounce rates in August near pre-second wave levels

Banking & Finance

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Bounce rates for auto-debit transactions in August were at similar levels as March 2021 as businesses and borrowers shrugged off the impact of the second wave of the Covid-19 pandemic.

According to data from the National Payments Corporation of India from the National Automated Clearing House (NACH), the bounce rate or percentage of unsuccessful auto-debit transactions in August 2021 was 32.98 per cent.

This is the lowest since March 2021 when the bounce rate was 32.76 per cent. In all, a total of 8.76 crore auto-debit transactions were reported on the NACH platform in August, of which 5.87 crore were successful and 2.89 crore were returned or unsuccessful.

Also read: Resilient demand keeps driving India’s world-beating growth

Typically, auto-debit transactions are for recurring payments such as EMIs and insurance premiums although it does not capture intra-bank transactions. With the second wave of the pandemic leading to localised lockdowns and impacting economic activities, bounce rates had started to climb up from April 2021 after easing from December 2020.

In the last two months, as Covid cases have come down in most parts of the country and the economy has opened up again, bounce rates have started coming down again. Many lenders have reported that collection efficiencies have returned to normal and are at the pre-second wave levels.

“The collection efficiency was reported at about 97 per cent for August 2021, further improving on 95 per cent reported in July 2021 (collection efficiency in April, May and June was 72 per cent, 67 per cent, 90 per cent respectively),” Mahindra Finance had said, recently.

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With the opening of the economy and improved mobility, it witnessed a meaningful reduction in the NPA contracts during the month as customer cash flows improved and said it expects the downward trajectory to continue in September.

Similarly, CreditAccess Grameen reported that standalone collection efficiency including arrears improved to 99 per cent in August 2021 from 97 per cent in July 2021 and 84 per cent in June 2021, indicating consistent improvement in overdue collections.

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Bounce rates for auto-debit transactions fall in July

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In an indication of easing financial stress amongst borrowers, the number of unsuccessful auto-debit requests declined in July, reversing a three-month trend that started with the second wave of the pandemic and localised lockdowns.

Data with the National Payments Corporation of India from the National Automated Clearing House (NACH) reveals that the number of unsuccessful auto-debit requests in July was at its lowest level this fiscal year.

Of the total auto-debit transactions of 8.64 crore in July 2021, 2.87 crore were unsuccessful or returned while 5.77 crore were successful. This translated into a bounce rate of 33.23 per cent in July.

Elevated bounce rates

Auto debit bounce rates have remained elevated since the start of this fiscal year at 34.05 per cent in April and then increasing to 35.9 per cent in May and 36.5 per cent in June. It was at a low of 32.8 per cent in March.

Auto debit transactions are typically done by customers for recurring payments such as EMIs and insurance premiums. The data does not capture intra-bank transactions.

With the second wave of the pandemic affecting normal life and economic activities, many banks and NBFCs had reported rising stress and a drop in payments by their borrowers in the first quarter of the fiscal as a large part of the economy was impacted. Some had also attributed the drop to widespread infections and difficulties in collections.

Recovery by June-end

However, by the end of June, collection efficiency had begun to improve and it further recovered in July.

“Non-banks reported a steep deterioration in asset quality (stressed loans up 75-1,150 basis points quarter on quarter) during the quarter, owing to lower collections in April and May 2021. Collections picked up in June 2021 and further increased in July 2021,” said a report by Kotak Institutional Equities, adding that early trends in the second quarter are encouraging, though there may be wide variations in the pace of recovery.

The report further noted that banks also reported a higher level of upgradations as banks were able to resume collections and recoveries towards the last few weeks of the first quarter.

Equitas Small Finance Bank recently said that collection efficiency in July improved to 104.62 per cent from 83.49 per cent in June.

Nitin Chugh, MD and CEO, Ujjivan SFB, said that collection efficiency recovered to 78 per cent in June 2021 against 94 per cent in March, and further recovered to 93 per cent in July.

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

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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

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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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