Decline in payment bounce rates, indicate lower delinquencies for banks

Banks and NBFCs are showing early signs of lower delinquencies, as bounce rates for debit payments are declining and are now back to pre-Covid levels. The payments have been improving on a month-on-month basis.

Data from the National Payments Corporation of India’s (NPCI) National Automated Clearing House (NACH) platform showed that failure rates for debit transactions used for recurring debit payments, like equated monthly instalments (EMIs) and insurance, fell to 27.35% by value in July, down from 30.27%  in May and June, indicating that more payments were successful. However, the bounce rates were still higher as compared to the pre-Covid levels of 24.84% in January 2020.

The Economic Times reported that the pre-Covid (2017-19) bounce rates for the months of July on an average have been around 24% by volume and around 20% by value. The current bounce rates by value are still 700-800 basis points higher than the pre-Covid levels, indicating that there is some stress in the system and the repayment behaviour hasn’t come back to the pre-Covid levels.

However, if the momentum continues then recoveries could come back to pre-Covid levels from September on a low base, as fiscal 2019-20 was a slow year in terms of economic activity, the publication said.

Banks expect festive season to be better

The publication also reported that banks are expecting things to get better ahead of the festive season, as operational efficiencies of borrowers have been improving, and also the monsoon season subsiding by September.

Traditionally, the festive season is considered as a good time for business, and bankers are expecting a pick up during that time. However, they keep their fingers crossed.