“As the moratorium period ended in August 2020, we could see some increase in retail stress in the coming quarters,” said Suresh Ganapathy, associate director, Macquarie Capital. “The stress indicated by bank managements is well within the additional covid related provisions and the provisioning run rate that banks have been making every quarter, in our view.”
The market should not get overly concerned about retail NPLs going up, Ganapathy added.
“Quality private sector banks are carrying covid related provisions (excluding standard asset provisions) at 60-130 basis points of overall loans,” he said. “Run rate per quarter on an annualised basis also has been around 200 basis points. We believe banks can tackle retail stress and we don’t see a big wave like the wave we saw in corporate NPLs.”
Macquarie’s channel checks reveal that there has been a marginal dip in collection efficiencies (CE) from the levels seen in September and October 2020 and restructuring request also have been coming through on a regular basis which is not alarming.
Data from NPCI reveals that bounce rates for November 2020 by volume and value have gone up by 940 basis points YoY and 640 basis points YoY respectively. That shows some increase in stress.
“We would be mindful of extrapolating the entire delta seen here into retail stress,” Ganapathy said.
According to Ganapathy’s assessment, NACH debit is one form of payment and the cure rates for NACH debits usually is very high. A lot of these high bounce rates can be attributed to NBFC customers where collection efficiencies are low.
“Very often it’s a behaviour issue as borrower maintains insufficient balance on the date of debit and then the banks follow up and borrower immediately corrects it,” he said. “This is also evident that even pre-covid bounce rates by value were high at around 20%.”
While all the large banks have reported average collection efficiencies of 95% for September, the bounce rates on NACH debit transactions have been inching up and currently stands at 40% by volume and 32% by value as compared to 31% and 25% in February, data with NPCI shows.