Auto-debit payment bounce rates in January lowest since August 2019

Despite the Omicron wave being at its peak in January, auto-debit payment bounces or bounce rate by value for the month was the lowest since August 2019 (pre-pandemic period). This indicates that asset quality of lenders has been improving steadily.

Bounce rate has been trending downwards since July 2021, as the second wave of the pandemic receded.

According to National Automated Clearing House (NACH) data, in January, the bounce rate in volume terms stood at 29.6 per cent and in value terms it was 23.4 per cent.

In December 2021, bounce rate in volume terms stood at 30 per cent and in value terms 24.4 per cent. On a month-on-month (MoM) basis, the bounce rate declined by 30 basis points (bps) and 100 bps by volume and value, respectively.

According to a Macquarie report, bounce rate was lower than the levels seen during pre-Covid months of September 2019-February 2020 and by value 140 bps better than October-December 2021 period. The quarter (October-December) was the best quarter during this financial year in terms of economic recovery.

“This indicates a continuation in trend seen during Q3 of FY22 for major banks on the asset quality front, with the Covid third wave having no major impact on economic activity and collections efficiency. We believe improving bounce rate will further have a positive impact on unsecured retail credit growth as banks regain confidence,” said Suresh Ganapathy, associate director, Macquarie Capital, in his report.

Ganapathy further said, “We believe as retail and SME non-performing loans decline further — driven by improved credit discipline and higher recoveries — banks are expected to push for higher growth in unsecured portfolio. This would result in increased margins.”

Earlier, experts were worried that the third wave may cause a spike in bounce rate once again, given some restrictions being imposed to check the spread of the virus.

It was spreading very fast in the latter part of December and January. Most banks — in their Q3 earnings call — also corroborated that while there was a sharp rise in Covid cases in the third wave, the impact of it has been milder.

The unsuccessful auto-debit requests through the NACH platform are generally referred to as bounce rate. NACH, a bulk payment system operated by the National Payments Corporation of India (NPCI), facilitates one-to-many credit transfers.

These are dividend payment, interest, salary, and pension. They also include collection of payments pertaining to electricity, gas, telephone, water, periodic instalments towards loans, investments in mutual funds, and insurance premium.

These are applicable for interbank mandates or between a bank and non-banking financial company (NBFC) or a fintech lender.

After seeing record numbers between June and November of 2020, highlighting stress in the system, the bounce rate started coming down from December 2020. This indicated higher regularity in equated monthly instalments, utility and insurance premium payments by consumers. However, the trend reversed in April 2021, as rates inched up due the second wave of the pandemic.

In July 2021, the trend inverted, and rates started falling as the impact of the second wave started waning. In 2020-21, unsuccessful auto-debit requests via NACH constituted 38.91 per cent of the total auto-debit requests. In 2019-20, they were 30.3 per cent. In 2018-19, they were 23.3 per cent.