Strong recovery seen as bounce rates ease further in Feb; lowest in 32 mths

According to NACH data, the metric improved by 100 bps by value over Jan, to 22.4%. By volume, it stood at 29.2%, an improvement of 40 bps over Jan

After staving off the impact of the third wave of the pandemic in January, bounce rates eased further in February, indicating a strong recovery in the economy and further improvement in the asset quality of lenders.

According to National Automated Clearing House (NACH) data, the bounce rate in value terms in February improved by 100 basis points over January to stand at 22.4 per cent, the lowest since May 2019. And, in volume terms, the bounce rate in February stood at 29.2 per cent, an improvement of 40 bps over January. These bounce rates were lower than the levels seen during pre-covid months of June 2019-February 2020.

Analysts are of the opinion that the improvement in bounce rate every month indicates that asset quality of lenders is likely to improve further, and they could see further reductions in retail non-performing assets (NPAs) in 4QFY22. However, the recent geo-political tensions may lead to some pressure in a select few segments of the retail portfolio.

Suresh Ganapathy, Associate Director, Macquarie Capital, said, “The recent geopolitical tension and corresponding impact on oil prices could cause some concern in the retail segment, especially in the rural and commercial-vehicle segments, as high fuel prices are passed on to customers”.

Bounce rate in pre-covid times (2018-20) in February on an average stood at 25.8 per cent and 21.5 per cent in volume and value terms, respectively. Hence, the current bounce rates are still around 100 bps higher than the pre-covid levels. But it is much better than the run rate of 300 – 400 bps higher that was being witnessed in earlier months.

“The bounce rate data reflects that the third wave of the pandemic had minimal impact on the debt servicing capability of borrowers. This is, perhaps, the lowest level in almost three years. And, this decline in the bounce rate trend is expected to continue in March as well. However, the rise in inflation going forward because of the expected hike in fuel cost may, perhaps, have an impact on disposable income and consequently the debt servicing ability, which needs to be closely tracked”, said Anil Gupta, VP & Sector Head – Financial Sector Ratings, ICRA.

According to a Macquarie research report, among banks private sector lender ICICI Bank has the lowest bounce rate in volume terms, followed by HDFC Bank, State Bank of India, and Axis Bank. IndusInd Bank and Kotak Mahindra Bank have the highest bounce rates amongst peers due to a larger share of vehicle and/or self-employed loans in the overall book.

The unsuccessful auto-debit requests through the NACH platform are generally referred to as bounce rate. And, NACH is a bulk payment system operated by the National Payments Corporation of India (NPCI) that 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 installments 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.

Bounce rates reached their peak between June and November of 2020, highlighting stress in the system. They started coming down from December 2020 onwards as the first wave of the pandemic receded. This indicated higher regularity in equated monthly instalments, utility and insurance premium payments by consumers. However, the trend again reversed in April 2021, as rates inched up due the second wave of the pandemic. After rising for a couple months due the second wave, bounce rates started falling again July 2021 onwards and have since continued on the downward trajectory.

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.