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In an indication of easing financial stress amongst borrowers, the number of unsuccessful auto-debit requests declined in July, reversing a three-month trend that started with the second wave of the pandemic and localised lockdowns.
Data with the National Payments Corporation of India from the National Automated Clearing House (NACH) reveals that the number of unsuccessful auto-debit requests in July was at its lowest level this fiscal year.
Of the total auto-debit transactions of 8.64 crore in July 2021, 2.87 crore were unsuccessful or returned while 5.77 crore were successful. This translated into a bounce rate of 33.23 per cent in July.
Elevated bounce rates
Auto debit bounce rates have remained elevated since the start of this fiscal year at 34.05 per cent in April and then increasing to 35.9 per cent in May and 36.5 per cent in June. It was at a low of 32.8 per cent in March.
Auto debit transactions are typically done by customers for recurring payments such as EMIs and insurance premiums. The data does not capture intra-bank transactions.
With the second wave of the pandemic affecting normal life and economic activities, many banks and NBFCs had reported rising stress and a drop in payments by their borrowers in the first quarter of the fiscal as a large part of the economy was impacted. Some had also attributed the drop to widespread infections and difficulties in collections.
Recovery by June-end
However, by the end of June, collection efficiency had begun to improve and it further recovered in July.
“Non-banks reported a steep deterioration in asset quality (stressed loans up 75-1,150 basis points quarter on quarter) during the quarter, owing to lower collections in April and May 2021. Collections picked up in June 2021 and further increased in July 2021,” said a report by Kotak Institutional Equities, adding that early trends in the second quarter are encouraging, though there may be wide variations in the pace of recovery.
The report further noted that banks also reported a higher level of upgradations as banks were able to resume collections and recoveries towards the last few weeks of the first quarter.
Equitas Small Finance Bank recently said that collection efficiency in July improved to 104.62 per cent from 83.49 per cent in June.
Nitin Chugh, MD and CEO, Ujjivan SFB, said that collection efficiency recovered to 78 per cent in June 2021 against 94 per cent in March, and further recovered to 93 per cent in July.
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