After months of distress, retail repayments seem to be limping back to normalcy with fewer defaults in auto-debit transactions in December.
Data from the National Payments Corp. of India showed that 38% of all auto-debit transactions failed in December, or about 200 basis points lower than November. It was, however, higher than the pre-covid run rate. The bounce rate, or the percentage of failed transactions, by volume, was at 31% and 31.5% in January and February 2020, respectively.
By value, the pre-covid bounce rate was around 25%. In the subsequent months, repayment failures surged amid job losses. In value terms, it was at 29% in December, down from 31% in November. This data on the National Automated Clearing House platform is for inter-bank mandates or those between a bank and a non-bank lender.
“What it shows is that the economy is recovering from the covid-19 shock, albeit gradually. However, even after an auto-debit bounces because of insufficient funds, lenders still follow up and collect the dues,” said an executive director of a state-owned bank, on the condition of anonymity.
The banker said that a large part of the auto-debit failures was originating from non-bank lenders and lending apps, which cater to customers with riskier profiles or the ones with weak credit histories. As the pandemic wreaked havoc on cash flows, lenders with significant exposure to such customers were hit hard.
“People have started going out and buying from local markets, instead of ordering everything online. That has put some money back in the hands of a section of the non-salaried class or self-employed people, allowing them room to repay,” the banker mentioned above said.
The recovery comes at a time when a judicial order has barred lenders from classifying certain loans as bad if not declared by 31 August. Bankers had earlier said that this led more people to delay their repayments, as they awaited the Supreme Court judgment. The formal moratorium ended on 31 August, but the apex court’s 3 September order for status quo in downgrading of loans is being seen as a moratorium by many, possibly affecting their repayment decisions.
“Looking at the check bounce trends, these have also been improving month-on-month since September, when we started measuring it,” Jimmy Tata, head of credit and market risk, HDFC Bank, told analysts on 16 January.