Monthly instalment bounce rates fall to more than 3-yr low
Premium- By volume of transactions, 29% of the auto-debit transactions failed in May, down from 29.9% in the previous month
MUMBAI : Bounce rates, or defaults in paying equated monthly instalments (EMIs), fell to a 38-month low of 22% by value in May, well below pre-covid levels of 24-25% and near June 2019 levels as most borrowers keep repaying dues on time, according to an analysis of National Payments Corp. of India (NPCI) data by ICICI Securities.
EMI bounce rates reached a peak in June 2020 following the shock of the first covid-19 wave that led to disruption in income generation amid widespread restrictions on movement. It again rose in May and June 2021 after the second wave wreaked havoc but has since been on a decline.
By volume of transactions, 29% of the auto-debit transactions failed in May, down from 29.9% in the previous month, taking it to a 33-month low. Analysts at ICICI Securities said that improving bounce rate trajectory, after a surprising rise in March, suggests that slippages and credit cost will descend in FY23.
“Also, Q4FY22 earnings reflected that asset quality woes have waned for financiers and the focus is shifting back to growth," they said in a report on 11 June.
However, as the rate cycle has turned, there are some concerns with regard to bounce rates as higher interest rates might affect the ability of borrowers to make timely repayments. Going by bounce rate trends during the third wave of covid-19, borrower incomes seemed to have been mostly insulated.
“Given inflationary pressures, rising input costs, and surprise hikes in benchmark rates, we will watch out for the extent of decline in asset quality," the report said.
This data does not reflect intra-bank standing instructions and is only for inter-bank mandates and those between a bank and a non-bank lender. These are recurring payments where borrowers have agreed to auto-debit mandates and funds are drawn on a monthly basis from their bank accounts.
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Meanwhile, banks are facing a fresh spike in bad loans, with close to 9% of the debt restructured under the Reserve Bank of India’s pandemic relief plan turning sour in the last six months of 2021-22, data compiled by Mint showed. Bad loan numbers are improving, but analysts are cautious about future delinquencies arising out of the restructured book.