High bounce rates indicate trouble ahead for lenders

Mumbai: Despite banks claiming that loan collection efficiencies have reached 95% of pre-Covid levels, bounce rates on auto-debit transactions continued to remain abnormally high.

Data with NPCI and research done by Macquarie Capital showed that bounce rates on the National Automated Clearing House (NACH) platform stood as high as 40% in volumes and 32% in value at the end of October.

This was at 31% in volume and 25% in value in February. Though these rates have come off slightly from a high of 45% in volumes and 38% in values in the month of June. Most banks and NBFCs have claimed of achieving near normal collection efficiency levels, but data suggests that Covid has altered borrower repayment behaviour.

Meanwhile, latest system loan growth stood at 5.7% as banks continue to be risk-averse due to pandemic led uncertainty. Infact system level liquidity which has dipped to Rs 3.2 lakh crore in September reverted back to Rs 6.3 lakh crore at the end of November, indicating that banks are parking surplus money with the RBI instead of scouting lending avenues.

“Despite sluggish system loan growth, we believe large private sector banks are well positioned to grow their loan books due to large distribution capabilities built over the years,” said Suresh Ganapathy, associate director, Macquarie Capital. “Private sector banks are well capitalised and have strong PPoP (pre-provision operating profits) to provide for bad assets in these uncertain times.”

Credit growth continued to be supported by the government’s Covid Emergency credit scheme.

“While the cumulative disbursements under ECLGS scheme were Rs 1.5 lakh crore since May the growth in the gross bank credit (in absolute terms) has been just Rs.1.2 lakh crore over a similar period indicating that large part of the bank credit growth from May to Oct has been mainly supported by disbursements under the ECLGS scheme,” Ganapathy added. “So, had it not been for the ECLGS scheme, things would have been even worse.”

Retail loan growth also continued to decelerate and stood at 9.3% on a yearly basis versus an average growth of 10.7% in the first half. Within the secured segment, mortgage loan growth decelerated further to 8.2%% year-on-year (YoY), while auto loans grew 8.4% YoY. In the unsecured segment, personal loan growth saw marginal pick up to 14.3% while credit-card loans grew by just 4.9% at the end of October.

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Banking/Finance-Industry-Economic Times

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