Retail repayments show signs of stress
Lenders saw higher cheque bounces in Apr, showing distress among borrowers
MUMBAI: Early signs that the second Covid-19 wave has hit retail repayments emerged in April as more borrowers missed equated monthly instalments (EMIs), showed data from the National Payments Corp. of India (NPCI).
The repayment trend was recovering till about March, when the second wave of the virus hit consumer sentiment. Banks said they witnessed higher cheque bounces in April, indicating a trend where borrowers hold on to funds even at the risk of defaulting.
In April, 34.1% of auto-debit transactions conducted through the National Automated Clearing House (NACH) failed, primarily due to insufficient funds. The volume of failures stood at 32.8% in March.
This data does not reflect intrabank standing instructions and is only for inter-bank mandates and those between a bank and a non-bank lender. These are recurring payments where borrowers have agreed to autodebit mandates, and funds are drawn monthly from their bank accounts.
In value terms, 27.9% of transactions were unsuccessful in April against 27.5% in the previous month. While the rise in auto-debit failure is about 129 basis points between March and April, experts cautioned that it might worsen in May with more states under lockdowns.
“If it rose to 34% in April when fewer states were under lockdown, May numbers will be substantially higher as it is practically a national lockdown this month,” said Parijat Garg, a digital lending expert.
Garg pointed out that the challenges will be more significant for self-employed people and those not part of any formal work environment as income streams crash during lockdowns. “For salaried peotaken
ple, companies are yet to cut remunerations or reduce staff strength, unlike last year, when such cost-cutting measures were rampant,” he said.
Mint reported on March 15 that the sharp surge in Covid-19 cases and the resulting restrictions
will lead to a pickup in auto-debit payment bounces, which had been declining over the last few months. The second wave has turned out to be deadlier than the first onslaught last year, with the virus turning more virulent.
The impact is evident in banks reporting lower collection numbers for April and turning cautious. “We are halfway through April, so I cannot really comment on the demand resolution for April, but the cheque bounces in April have a bit of an upward blip,” Jimmy Tata, chief credit officer at HDFC Bank Ltd, told analysts on April 17.
According to Tata, the higher cheque bounces were probably owing to some panic as millions of households battled health crises. “We do not know what it is, cannot say whether this is a blip or whether it is a trend, but cheque bounces in April have been slightly higher than they were in March, some sort of a trend reversal.”
Sensing a build-up of stress in the retail segment earlier this month, the Reserve Bank of India (RBI) unveiled more measures to aid this segment.
The central bank stepped in to rescue retail and small business borrowers with loans of up to ₹25 crore, allowing lenders to restructure their debt and offer some respite. Under the new plan, banks can also tweak existing recast contracts issued according to last year’s resolution framework. This would allow borrowers to utilise the full moratorium of up to two years with easier repayment terms.