Covid-19 Second Wave: Auto-Debit Bounce Rate Rises To A Third In May

The “bounce rate” on auto-debit or recurring transactions rose in May, hinting at the possibility of stress among retail borrowers. The data, while directionally indicative, isn’t a precise indicator of stress as bounce rates are often driven by technology glitches as well.

In May, the bounce rate on auto debit transactions via the National Automated Clearing House rose to 30.7%, according to the latest data from National Payments Corporation of India. The bounce rate is 270 basis points higher than a month ago.

The rise in May, as per a Macquarie Research note on June 9, is surprising as mobility restrictions are less stringent this year compared to the nation-wide lockdown announced during the first Covid wave in India.

“While April ’21 debit bounce rates were lower than April ’20, we are surprised that May ’21 bounce rates (by value) were higher than May’20 bounce rates albeit marginally as the lockdowns and restrictions imposed in May’20 were far more severe than May ’21,” it said.

The sequential drop in bounce rates, according to the Macquarie note, is reflected in the 10-15% dip in collections of non-bank lenders. “A lot of these high bounce rates can be attributed to NBFC customers where collection efficiencies are low,” it said.

However, banks are reporting stable collection efficiencies in May, the report said.

Even as bounce rate for auto-debit transactions through NACH inched up, it cannot be fully extrapolated to indicate retail asset quality stress for banks, Macquarie said.

NACH debit is just one form of payment and this data doesn’t capture other payment modes such as cheque transfers, electronic clearance system and direct debits.

NACH contributes to less than 20% of collections for banks.

Besides, it could also be a behaviour issue among borrowers who maintain insufficient balance in their accounts. “The cure rates for NACH debits usually are very high. Very often it’s a behaviour issue as the borrower maintains insufficient balance on the date of debit and then the banks follow up and the borrower immediately corrects it,” it said. “This is also evident that even pre-Covid bounce rates by value were high, at around ~20%.”

Another reason why NACH bounce rate data may not be a clear indicator of retail asset quality issues, is because it doesn’t include unique borrower representations.

“A lender can make multiple representations for NACH debit and each bounce for the same borrower/debit transaction could be counted multiple times,” Macquarie said.