EMI bounce rates inch up in March as inflation pinches, moratoria end

The share of failed auto-debit requests on the National Automated Clearing House (NACH) platform rose marginally to 29.6% in volume terms in March 2022, up 40 basis points (bps) from the previous month. In value terms, the bounce rate stood at 22.8%, up 36 bps from February 2022.

Bounce rates had been easing since November 2021 and had reverted to pre-pandemic levels earlier this year, as the economy opened up and borrowers’ ability to repay loans improved. The trend may have been reversed to an extent in March as rising prices of food and fuel hurt borrower finances, said two analysts tracking the financial sector. Also, delinquencies from some retail accounts restructured under the Reserve Bank of India’s (RBI) Covid-resolution schemes may have increased in March.

As per data released by the National Payments Corporation of India (NPCI), of the 97.93 million debit requests made in March over the NACH platform, 28.99 million bounced. Of the requests for Rs 97,801 crore, declines were to the tune of Rs 22,302 crore.

To be sure, some of the debit requests made by the NACH platform are not for EMI payments; the platform is also used for insurance premium deductions and systematic investment plan (SIP) mandates. Among the EMI mandates, requests from non-banking financial companies (NBFCs) and fintechs account for a chunky share.
“The rise in the bounce rate is minimal and it could be due to inflationary pressure on borrower cash flows,” said an analyst. The first set of fuel price hikes in four months began on March 22 amid heightened volatility in global crude prices.

Moratoria on some small-value loans restructured to address Covid-related stress expired in the January-March 2022 quarter, and part of the rise in delinquencies may have emerged from such accounts. Bankers say anywhere between 4-5% of such accounts have slipped into the non-performing asset bucket. Sector experts say the last few quarters’ improvement in bounce rates may not have fully reflected the level of stress within the financial sector. In a report on April 5, analysts at rating agency Icra said that challenges could emanate from the performance of the restructured loan book which poses uncertainty to asset quality.

Anil Gupta, vice-president, Icra, said, “Russia-Ukraine conflict poses macro-economic challenges related to cost inflation, higher interest rates and exchange rate volatility, this could pressurise asset quality. Elevated levels of overdue loans in retail and MSME segments post-Covid also remain a concern.”

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