Second Covid wave: Auto-debit payment bounce rate increases again in April

In absolute terms, in April of the 85.4 million auto-debit transactions initiated, 56.3 million were successful, while 29.08 million failed
The second wave of the pandemic and the localised lockdowns have led to the problem of failure in auto-debit transactions surfacing again in April.


According to the National Automated Clearing House (NACH) data, in April 34.05 per cent of auto-debit transactions in volume terms failed compared to 32.76 per cent in March — the lowest after February 2020.


In absolute terms, in April of the 85.4 million auto-debit transactions initiated, 56.3 million were successful, while 29.08 million failed. Since December, the share of unsuccessful auto-debit requests had been declining steadily, indicating higher regularity in equated monthly instalments (EMIs), utility, and insurance premium payments.


Unsuccessful auto-debit requests through the NACH platform are generally referred to as bounce rates. The NACH platform is largely used to collect payments for loans, investment in mutual funds, and insurance premiums.


These are applicable for inter-bank mandates or between a bank and non-banking financial company or fintech lender. 


Although the April figure is not alarming, industry experts say it could head higher amid the increased lockdowns/restrictions imposed by many states.


“The bounce rate has gone up because of the second wave and by the look of it, May could see a further increase in bounce rates, given the prevailing situation. But the positive thing is the bounce rates are not as high as they were in the initial months of the first wave  despite the current wave being much stronger,” said Anil Gupta, sector head (financial sector ratings), ICRA.


According to experts, NBFCs and fintech lenders have stepped up their retail loans and that might have been one of the reasons for the bounce rate to be high as the customer profile of NBFCs is weaker than banks’. So, even before the pandemic hit, the bounce rates were going up.


The decline in auto-debit transactions had peaked in June last year when the failure rate was over 45 per cent.


“While some parts of the country were under lockdown in April, in May the situation has changed and it seems most of the country is under lockdown. Hence, the bounce rates are expected to go up,” said Parijat Garg, a digital lending consultant.


Satyam Kumar, CEO and co-founder, LoanTap, said: “We have seen a difference of only 1 per cent in the bounce rate … no significant impact on the bounce rate has been observed.”


Despite the fact that the bounce rate had been gradually declining from the peak seen during the initial months of the pandemic, it remains higher than the pre-Covid levels. In January and February 2020, the bounce rate was around 31 per cent. In FY21, the unsuccessful auto-debit request constituted 38.91 per cent of the total auto-debit requests while in FY20 it was 30.3 per cent and in FY19 it was 23.3 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 ravaged the economy, rendering millions of people jobless. Also, there was a moratorium on loan repayments for six months which ended on August 31, 2020.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel