Home / Industry / Banking /  Covid third wave yet to derail bank loan recoveries

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 non-bank 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 were 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.

Srinivasan Vaidyanathan, chief financial officer at HDFC Bank, told analysts on 15 January 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," said Vaidyanathan.

Bounce rates reached their peak in June 2020 following the shock of the first wave that led to disruptions in income generation amid widespread curbs on mobility. It again rose in May and June 2021, after the second wave wreaked havoc. But the rates have since declined, according to data from the National Automated Clearing House (NACH).

Nevertheless, experts are not too sure this trend will hold, believing some segments remain vulnerable despite policy support.

India Ratings believes segments such as personal loans, business loans, school buses, taxi and heavy commercial vehicles are still seeing lower collection efficiencies or higher bounce rates. “These have been restructured at a higher proportion, and so the actual pain in these segments does not get reflected in the bounce rate data. India Ratings believes credit cost would be elevated for FY22 and slippages from the restructured book can put pressure on headline asset quality numbers," it said in a report on Wednesday.

According to Pankaj Naik, associate director at Indian Ratings, almost all lenders reported an improvement in collection efficiency.

“However, the methodology of reporting collection efficiency across lenders remains inconsistent with differences in the way overdue collections and overdue demand are used for calculations. The differences on this account could add up to 10% among NBFCs," he said.

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