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

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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