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Three months since the end of the moratorium, scores of retail borrowers are not being able to repay their loans, a trend which could lead to a build up of toxic assets for lenders.

If auto-debit failure rates are any indication, India’s individual borrowers are at the centre of a brewing crisis brought about by a pandemic-induced disruption to cashflows. In November, 40.5% auto-debit transactions by volume failed, showed National Payments Corp. of India (NPCI) data. This is a tad higher than October’s 40.1% and a sharp rise from 31.5% in February prior to the coronavirus outbreak.

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However, in value terms the rise at 31.13% in November is lower than October’s 32.2%. This data on National Automated Clearing House (NACH) platform does not reflect intra-bank standing instructions and is only for inter-bank mandates and those between a bank and a non-bank lender.

Responding to the crisis in March, the Reserve Bank of India (RBI) had allowed a six-month moratorium on loan repayments for the March-August period. Then it let banks and non-bank lenders restructure loans with easier repayment norms. However, not many availed of this facility, with State Bank of India (SBI) restructuring just 4,000 home and personal loans. Experts said retail loans—the bastion of most lenders—could see more stress accumulating due to the pandemic.

“As the moratorium period ended in August, we could see some increase in retail stress in the coming quarters," Suresh Ganapathy, research analyst, Macquarie Capital said in a report on Tuesday. To be sure, the stress indicated by bank managements is well within the additional covid- related provisions and provisioning run rate that banks were making every quarter, he said.

Ganapathy said however that retail stress levels could surge to a 10-year high of 4% in the next few quarters but the market should not get overly concerned about increase in retail bad loans.

Bankers believe retail loans turning bad will increase in the December and Marxch quarters. Amitabh Chaudhry, chief executive, Axis Bank, told CNBC TV18 on Monday that some retail customers who were under moratorium could turn non-performing in the third and fourth quarter because “the metre has started running all over again", pointing to the end of the moratorium.

But the size and shape of the expected slippage is much smaller in comparison to the moratorium-two (June-August) number but there will be slippages, said Chaudhry. “I would expect banks to show higher retail slippages in the third and fourth quarter."

Not everybody is concerned though. Soumya Kanti Ghosh, group chief economic adviser, SBI said, “much of the gloom about NACH (bounce rate) is misplaced".

He said in a report on Tuesday that in recent months, the NACH bounce percentage by value of total debits (recurring payments including EMI, insurance premium) has declined.

Data compiled by Mint showed that after having peaked in June at 38.1%, the number has remained in the range of 31.1-33% between July and November, nowhere near levels seen prior to the pandemic when it was in the 20s.

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