Loan defaults in January steady despite Covid

MUMBAI: Bounce rates or defaults in paying equated monthly instalments have not worsened so far in January as most borrowers are paying their dues on time, banks and nonbank lenders said.

The trend indicates borrowers’ incomes have been insulated so far from the third wave of the pandemic, unlike what was seen in the first two. Lenders, however, believe that the full effect of this wave is yet to unfold. Bankers said they are yet to see any sizable dip in collection efficiency and are hopeful that the third wave will ebb sooner than expected. Bounce rate takes into account recurring payments where borrowers have monthly auto-debit mandates with their banks.

Two lenders—hdfc Bank and Bajaj Finance—have recently declared their December quarter earnings and their managements have pointed to stable bounce rates in January. Bajaj Finance told analysts that bounce rates for January across products was in line with December 2021 levels, according to a report by Motilal Oswal.

“The management raised its FY22 credit cost guidance to ₹4,800-5,000 crore (from ₹4,300-4,400 crore earlier). This is a rather conservative stance to build management overlay and could see provision write-backs if there is no impact from the third covid wave,” Motilal Oswal said in a note on Wednesday, adding that times are still uncertain, given the pandemic is still around.

Srinivasan Vaidyanathan, chief financial officer at HDFC

Bank, told analysts on January 15 that the cheque bounce rate continued to improve in December across most retail products and is not only back to pre-pandemic levels, but marginally better. “Further, the early January bounce rate shows continued improvement,” he said.

Bounce rates reached their peak in June 2020 following the shock of the first wave. It again rose in May and June 2021.