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Auto-debit bounce rates for loan EMIs inch up in March

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In an indication of rising stress in retail loans, auto-debits tracked by the National Automated Clearing House (NACH) platform of the National Payments Corporation of India (NPCI) inched up 40 basis points month-on-month in March. A basis point is 0.01 percentage point.

In March, the bounce rates by value were at 22.8%, better than the pre-Covid range of 24.5%-25.0%, arresting the downward trajectory reflected all through FY22. Similarly, bounce rates by volumes, too, rose sequentially to 29.6% much better than the pre-Covid average of 30.5-31.5%.

A few banks which reported March-quarter earnings have shown increasing stress on the retail book.

“As per market feedback, asset quality woes have waned and now the focus is shifting back to growth,” said Kunal Shah, senior vice-president, ICICI Securities. “Also, given that geopolitical uncertainties have not been disruptive, slippages and credit costs are likely to descend going forward. However, given the marginal uptick in March 2022 and sequential rise in retail NPAs in one of the leading banks that has reported earnings thus far, we will watch out for the extent of the decline in asset quality.”

For ICICI Bank, fresh slippages or new bad loans were slightly higher than expected with retail and business banking loans contributing 89% of the overall ₹4,200 crore gross slippages. Most banks have reported improvement in collection efficiency ratios, higher upgrades and recoveries and have downplayed any stress that could likely emerge from the Covid emergency guarantee scheme. Banks have also seen a fall in restructured assets.

According to rating agency ICRA, in terms of asset quality, the gross non-performing assets are expected to decline to 5.6-5.7% by March 2023 as against the estimated 6.2-6.3% by March 2022 while the net NPAs will decline to 1.7-1.8% as against estimate of 2.0% by March 2022. Despite the asset quality outlook looking better, pressures continue to emanate from a few segments. “For the sector, challenges emanate from the performance of the restructured loan book, which poses uncertainty to asset quality as these loans exit moratorium,” said Anil Gupta, vice-president, ICRA.

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