The bounce rate on auto-debit transactions remained above 30% in November, unchanged from 31.2% in the previous month. The failure rate of such transactions, many of which are debit requests for loan repayments, still remained higher than their pre-Covid levels, indicating high levels of stress in the retail segment.
According to data released by the National Payments Corporation of India, of 90.73 million debit requests made in November over the National Automated Clearing House (NACH) platform, 28.33 million bounced. In terms of value, the bounce rate on auto-debit requests stood at 25.16%, slightly worse than 24.83% in October.
Data from the NACH platform does not include intra-bank transactions, and therefore do not represent all debit requests made in the financial system. EMI payments to smaller non-banking financial companies (NBFCs) and fintechs constitute a chunky share of requests made through the NACH platform.
While stress in the retail segment has eased significantly from the levels seen in Q1FY22 in the wake of the second wave of the pandemic, lenders’ asset quality troubles may be far from over. On Tuesday, the Reserve Bank of India (RBI) warned that the increased share of restructured accounts on lenders’ books remains a source of risk.
During the two waves of Covid-19, the RBI had announced two rounds of relief measures to assist borrowers affected by the pandemic. Resolutions under the second restructuring framework for individuals, small businesses and micro, small and medium enterprises (MSMEs) were to be invoked before September 30, 2021, and the resolution plan had to be implemented within 90 days from the date of invocation. “As support measures start unwinding, some of these restructured accounts might require higher provisioning by banks over the coming quarters,” the central bank said in its report on trend and progress of banking in India for FY21.
Bad loans reported by non-banking financial companies (NBFCs) are expected to rise by up to a third, according to some analysts, after March 2022 as the central bank’s clarification on upgradation of non-performing assets (NPAs) kicks in.
Moreover, reclassification of NBFC borrowers is relatively more difficult, India Ratings and Research said in a recent report. “NBFC borrowers are generally a weak class of borrowers and have volatile cash flows which could mean that once an account has been classified as NPA, it could remain there for a considerable period as the ability to clear all dues may be constrained,” the rating agency said.