Auto debit bounce rates plunge to 3-year low in May

Latest statistics from the National Automated Clearing House (NACH) from the National Payments Corp of India (NPCI) show that failure rates on recurring payments for monthly loan instalments or frequent transactions like insurance payments fell to 22% by value and 29% by volume in May 2022, lower than the levels seen before the Covid pandemic.

“In May’22, unsuccessful auto-debit requests (bounce rate) in terms of value on the NACH platform fell to a 38-month low at 22.0%, which is well below pre-Covid levels of 24-25% and near-Jun’19 levels. Similarly, the bounce rate in terms of volume too fell to a 33-month low at 29.0% compared to pre-Covid levels of 30-31%. Improving bounce rate trajectory, after a surprising rise in Mar’22, suggests that slippages and credit cost will descend going forward in FY23,” said

in a note.



Bounce rates had inched up in March 2022 to 22.8% by value from 22.4% in February 2022 igniting fears of rising defaults due to slower economic growth. However, those fears have been unfounded.

Bankers said the trend confirms what is happening on the ground with better collection efficiencies and declining loans due past 60 days.

“Bounce rates are early trends which are a mix of many factors. The improving collection efficiencies and lower SMA 2 loans (due past 60 days but less than 90 days) confirm the trend and there are no signs of any stress building up,” said Jorty Chacko, executive director-retail assets at

.

Analysts said tighter credit underwriting by banks has also kept asset quality in check. “Banks have tightened their credit requirements post-Covid and it is reflecting in the reduction in bounce rates. Going forward as banks become bolder in lending it could have any impact on bounce rates but largely the trend will be benign,” said Nilanjan Karfa, executive director at Nomura Securities.

Rising inflation, higher input costs and higher interest rates could lead to some pressure on asset quality in the medium term, ICICI Securities said.

However, Chacko from IDBI Bank said recent experience does not show any link between rising rates and defaults. Better underwriting and careful selection of borrowers by banks could also limit the chances of default.