Bounce rates in December fall to their lowest since Covid-19 pandemic

December data indicates a good third quarter for banks on asset quality front

Auto-debit payment bounces or bounce rates in December 2021 fell to their lowest since the Covid-19 pandemic break-out and were even lower than pre-Covid levels, continuing the trend witnessed since July 2021.

According to the National Automated Clearing House (NACH) data, in December, the bounce rate in volume terms stood at 30 per cent and in value terms 24.4 per cent. Bounce rates in volume and value terms were the lowest since September 2019.

Suresh Ganapathy, associate director, Macquarie Capital, said, “This indicates a good third quarter for banks on the asset quality front as collection efficiency improves further, a continuation of trend witnessed in the second quarter (Q2) of 2021-22 (FY22).”

In value terms, the bounce rate was nearly 220 basis points (bps) better than July-September, which was the best quarter this year (FY22) in terms of economic recovery. On a month-on-month basis, bounce rates have declined 130 bps and 70 bps by volume and value, respectively, which is encouraging, observed a Macquarie Research report.  

But in pre-Covid (2017-2019) times, the bounce rates for December on average have been nearly 26 per cent by volume and 22 per cent by value. The current bounce rates by value are around 300-400 bps higher than pre-Covid levels, the report further added. Also, among banks, ICICI Bank has the lowest bounce rate; IndusInd Bank the highest, the report pointed out.

“The bounce rates continue to improve. In December, they were much lower than pre-Covid levels. Although the lockdown and restrictions imposed because of the third wave are milder, given the rate at which the virus is spreading, the restrictions may intensify and result in pushing the bounce rates higher from February onwards. The pace of the spread of the virus will determine the bounce rate. The increase in bounce rates may also constrain the ability of lenders to roll back the softer delinquencies,” said Anil Gupta, vice-president, financial sector ratings, ICRA.

NACH, a bulk payment system operated by the National Payments Corporation of India, facilitates one-to-many credit transfers, such as dividend payment, interest, salary, and pension, as also 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 or a fintech lender.

After seeing record numbers between June and November of 2020, highlighting the stress in the system, bounce rates started coming down from December 2020, indicating 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 their earning calls for the July-September quarter (Q2FY22), lenders had indicated that their collection efficiencies had gone past the April–June quarter and they had been able to pull back the slippages seen in the retail segment, with economic activity picking up after the a debilitating second wave.

Experts said bounce rates were at an elevated level even before the pandemic reared its ugly head, because of a slowdown in the economy. Asses­sing April 2019 numbers, the bounce rate stood at 27.7 per cent and 22.2 per cent.

While bounce rates may not be the most accurate barometer of stress in the system, they offer an indication, albeit directionally. NBFCs and fintechs have seen huge growth, with digital lending coming in and these segments attracting a newer and different set of customers who might not be risk-prone. That could be one of the reasons for bounce rates to remain on the high side.

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.