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Indian banks bounce rates lowest since Covid began

In signs that the asset quality situation of Indian banks is turning for the better, the bounce rates at the end of last month have been the lowest since the pandemic began.

Bounce rates rates tracked by NPCIs e-NACH platform came in at 33.0% and 26.8% by volume and value respectively for the month of August. In July these figures were at 33.2% and 27.4% by volume and value. This was down from a high of 35.9% and 30.7% in volume and value, registered in the month of May.

“Bounce rates by value for August have lowest since the pandemic began, so that’s a very encouraging sign. This indicates that recovery has been gaining good steam and a lot of slippages that we witnessed for banks in April-June quarter is likely to be recovered, though the key uncertainty however remains a third wave,” said Suresh Ganapathy, associate director, Macquarie Capital.

These bounce rates were even better (lower) than the levels seen during Jan-Mar’21 which was the best quarter last year in terms of recovery for the economy and overall performance for the financials, as per Ganapathy.

Though bounce rates still remained above pre-Covid levels. An analysis made by Macquarie shows that pre-covid (2017-2019), the bounce rates for the month of August on an average have been around 24% by volume and 20% by value.

The current bounce rates by value are still nearly 700-800 basis points higher than pre-covid levels reflecting that some stress in the system is still there and repayment behaviour hasn’t fully come back to pre-covid levels.

On the upside most banks have indicated improving collection trends from July across retail business segments.

Many banks have said that they have already recovered close to 30-40% of the slippages seen in the June quarter.

“The large slippages were particularly in the retail segment i.e., segments like gold loans, microfinance, commercial vehicle loans where collections were impacted due to lockdowns as well as health of employees/collection workforce,” Ganpathy said. “HDFC Bank has already said that NPA recoveries could positively surprise this quarter particularly in the rural and SME space.”

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