Fewer defaults on EMI payments by consumers in March, shows NACH data

Recurring payments of retail customers — including loan installments, insurance premiums, etc — saw fewer defaults in March.

According to the data released by the National Payments Corporation of India, 32.76 per cent of all auto-debit transactions in volume terms failed in March compared to 36.6 per cent in February.

In absolute terms, of the 92.04 million transactions initiated, 61.88 million were successful, while 30.15 million failed.

The decline in auto-debit transactions had peaked in June last year when the failure rate was over 45 per cent. Since then, it has been gradually coming down, indicating higher regularity in EMI payments by consumers.

The unsuccessful auto-debit requests through the National Automated Clearing House (NACH) platform are generally referred to as bounce rates. The platform is largely used to collect payments for loans, investments in mutual funds, and insurance premiums.

Despite the fact that the bounce rate has been gradually declining from the peak seen during the initial months of the pandemic, it remains higher than the pre-Covid levels. In February 2020, the bounce rate was a little over 31 per cent.

In January this year, around 36 per cent of auto-debit requests were declined. December saw a little over 38 per cent such requests getting declined, while in November, it was as high as 40.5 per cent. In September, around 40.83 per cent of requests were declined, as was the case in August, with the figure at 40.3 per cent.

However, in July, the declined request was higher at almost 42 per cent, while in June, it peaked at 45.36 per cent. April and May witnessed a bounce rate of 36-38 per cent.

There are many reasons why such requests get declined but the most common is customers not having adequate balance in their accounts. The high bounce rate seen last year coincided with the peak months of the pandemic, which ravage the economy, rendering millions of people jobless. 

Also, there was a moratorium on loan repayments for six months which ended on August 31, 2020. The country’s apex court had also asked banks to not tag accounts as non-performing assets, an order it vacated last month. 

Analysts and rating agencies have estimated the bad assets of banks will go up by as much as 1 per cent. Also, the rise in Covid-19 infections again, being termed the “second wave”, is resulting in localised lockdowns, thereby disrupting business activity. Experts fear the bounce rates may go up again.