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

The share of unsuccessful auto-debit requests in volume terms eased from 36.65% in February.

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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