EMI bounce rate improves to a five-year low indicating no material signs of risk build-up

  • The current unsuccessful auto-debit requests, or bounce rate, is around 50% lower than the peak of 38.1% in June 2020 registered during the COVID-19 pandemic.

Ankit Gohel
Updated18 Mar 2024
In FY24-TD, the average bounce rate in value terms has fallen to 20.8% from 22% YoY.
In FY24-TD, the average bounce rate in value terms has fallen to 20.8% from 22% YoY.

Bounce rates, or defaults in paying equated monthly instalments (EMIs), improved to a five-year low of 19.3% in February, suggesting no material signs of risk build-up and continued strong asset quality behaviour, according to an analysis of National Payments Corporation of India (NPCI) data by ICICI Securities.

The current unsuccessful auto-debit requests, or bounce rate, is around 50% lower than the peak of 38.1% in June 2020 registered during the COVID-19 pandemic. Overall, in FY24-TD, the average bounce rate in value terms has fallen to 20.8% from 22% YoY.

The EMI bounce rates peaked in June 2020 at 38.1% following the first COVID-19 wave that led to disruption in incomes amid restrictions on movement due to the lockdown. However, it has been on a declining path since then. 

Also Read: Expert's View: A 10-15% correction may be healthy; stick to high-quality private banks: Varun Fatehpuria

By volume of transactions, the bounce rate also broadly continued its improving trajectory with February’s print at 26.5% as against 28.3% YoY and 26.6% MoM. 

Historically, volume-wise bounce rate is higher versus value-wise, suggesting relatively higher stress in small ticket transactions or products. Importantly, bounce rate (volume-wise), after being flat for several months, has also started to settle at lower levels, suggesting improved behaviour in small-ticket size products as well, ICICI Securities noted.

“We maintain a benign stance on retail and overall asset quality for the banking system in the near to medium term. While we remain watchful of retail asset quality behaviour, we do not see any material red flags on the same yet,” ICICI Securities said in a report.

Also Read: RBI asks Federal Bank, South Indian Bank to stop new co-branded credit card issuances

Meanwhile, the Reserve Bank of India (RBI) had recently announced certain regulatory measures to address the escalating systemic risk arising from the extraordinary expansion of unsecured retail loans.

In November 2023, the RBI increased the risk weights on unsecured consumer loans like credit cards by 25% for both banks and Non-Banking Financial Companies (NBFCs). 

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