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Assessment & impact of second covid wave intensity

Unsuccessful auto-debit requests (bounce rate) in terms of value on NACH platform have spiked 4% pps to 31% as against the average 27% for Jan-Mar ‘21. Last year, during the same period from Apr-Jun, it was around 35-38%. During the first covid wave, delta rise in bounce rate over the average was 30-40% and due to moratorium and non-tagging of NPLs the pace of moderation was underwhelming. As compared to that delta during the second covid wave seems to be 8-10% and there is hope on early normalisation.

Market feedback suggests 4-6 weeks have been challenging (but not as bad as last year) from mid-April to endMay in terms of collections and business. However, last couple of weeks have seen some uptick in collections/recoveries and may gather pace once there is broader easing of restrictions/lockdowns. In this note, we articulate what we infer in terms of collection efficiency and how delinquency pool will behave through FY22.

How bounce rate behaved over the past couple of months

Data released by the National Payments Corporation of India (NPCI) from its National Automated Clearing House (NACH) platform shows:

* Of the 85mn debit requests, 31mn requests were returned (unsuccessful auto-debit requests) for the month of May ‘21, translating into a bounce rate of 36% in volume – this was upwards of 40% all through the first half of FY20. Since Aug/Sep, it has been trending down to 38% in Dec and 33% in March. It has again risen 3 pps due to disruption in Apr/May.

* In value terms, share of unsuccessful auto-debit requests has also spiked 4% points to 31% (Rs250bn out of Rs815bn) as against the average of 27% for JanMar ‘21. Last year, during the same period from Apr-Jun, it was around 35- 38%.

What the trend suggests regarding the intensity of the second wave

* Here we present our view after evaluating the trend in bounce rates (unsuccessful requests) to gauge the intensity of the second covid wave.

* During the early phase of first wave, bounce rates spiked last year from pre-covid levels of 23-25% to 35-38%. The value of auto debit requests itself were down 15% (Mar-Jun ’20 over Dec’19-Feb ’20) due to moratorium while in absolute term, value of unsuccessful requests rose >15%. Also, due to moratorium and non-tagging of NPLs, the pace of moderation was under-whelming. This had a delta of more than 30-40% in terms of the intensity of the first wave.

* As compared to this, in Apr-May ’21, the value of auto debit request is 2-3% higher than Q4FY21 average and unsuccessful request value has risen 10-11%. This has a delta of ~8% over the recent averages (Q4FY21). So, the intensity of impact as per the recent month’s average in second wave is 25-30% of the first wave.

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