Auto debit payment failures ease in August, shows NPCI data

In volume terms, 32.98% of transactions initiated declined, 26.82% in value terms

Auto debit payment bounces decreased further in August, but only just, indicating a gradual return to normalcy after the second wave of the pandemic.

Data released by the National Payments Corporation of India (NPCI) shows that of the 87.68 million transactions initiated in August, 32.98 per cent or 28.92 million transactions failed. In value terms, 26.82 per cent of the transactions were declined in August, the lowest since the pandemic’s outbreak.

In July, the number of unsuccessful requests through the National Automated Clearing House (NACH) had declined, reversing a three-month trend of increases that started with the outbreak of the second wave.

Anil Gupta, vice-president of ICRA, said: “Although the bounce rates have declined both in volume and value terms, they are still higher than the pre-pandemic levels. Having said that, things are definitely looking good and this trend should further improve in September”.

He said the decline could also be attributed to restructuring, which reduced the repayment burden somewhat. “The bounce rate may go up if there is stress in the restructuring portfolio. But banks have reported that collection efficiency even in the restructured portfolio is fairly high. So, if the recovery sustains, we should have a positive bias on the bounce rates,” he said. 

In July, 33.67 per cent of transactions failed, which was a significant improvement over June, when over 36.5 per cent of transactions initiated failed. In May, 35.91 per cent of transactions failed, and in April it was 34.05 per cent.

Unsuccessful auto debit requests through the NACH platform are generally referred to as bounce rates. 

Experts said bounce rates may not be the best barometer of stress in the system, but they are directional indicators. They said these transactions constitute less than 15 per cent of banks’ collections. Hence, a higher bounce rate may not necessarily indicate a higher stress in banks’ retail asset portfolio. On the contrary, it may indicate higher stress in the NBFC (non-banking financial companies) portfolio.

There are many reasons for the declines, the most common being inadequate balance in customers’ accounts. Experts said, NBFCs and fintech lenders have stepped up retail loans in the last few years, and this might be one of the reasons for higher bounce rates as their customer profile is typically weaker than that of banks.

Auto debit declines peaked last June when the failure rate was over 45 per cent, but had declined thereafter. From December they had dipped below 40 per cent in volume terms, indicating higher regularity in equated monthly installment (EMI), utility, and insurance premium payments by consumers. However, that trend reversed in April.