‘The improvement in collection efficiency will be sustained’

There are enough indicators to suggest that the strong collection efficiency seen in Q2 will be sustainable, Sumit Bali, president & head – retail lending and payments, Axis Bank, told Shritama Bose. The festival-led growth uptick had both an element of pent-up demand and people’s willingness to spend more, he said. Excerpts:

There is some concern over the retail asset quality as bounce rates on auto-debit transactions are still high, according to data from the National Payments Corporation of India (NPCI). Incomes are not back to pre-pandemic levels. How do you see that piece panning out and what safeguards are you putting in place?

The NPCI data also account for fintechs who do small-ticket lending. They have ECS mandates going through NPCI. Those are small ticket loans like payday loans or loans with short tenures of two-three months. Those have a larger share in the data and that is skewing the figure. When we look at our own numbers, obviously, when you have such a pandemic and shutdowns for virtually three to four months, you will see some impact, but nowhere near the numbers mentioned. It is panning out to be far lower than what we had anticipated and that is what we had indicated in our Q2 commentary. Incrementally, collection numbers are getting better than our estimated and projected numbers. This uptick will continue and the worst for the business and salaried segment is over.

Some products, like unsecured business loans, are by nature more risky, have higher margin and impact is higher in this segment. We are observing the emerging data points to assess it. Typically, for an unsecured loan given for business, you won’t know the exact current status of the business of the borrower. For salaried customers, you have bank statements and most of them are your own customers, so it is easier to assess. Having taken all that into account, certainly things are better than expected.

There is a view that the improved collection efficiency seen in Q2 is the result of liquidity accumulated during the moratorium period, and may not sustain. What is your take?

Having seen the data of October and November, we do think things are getting better. September was probably a one-time uptick in terms of people conserving liquidity and foreclosing or part-closing the loan, but month-on-month the situation in terms of cheque bounces, repayment and collection efficiency is improving. Therefore, I think the improvement will be sustained.

Growth picked up close to the festival period. Are you seeing it sustain thereafter?

That’s the debate we keep having internally, but my sense is that the festive period uptick has been good. It had both an element of pent-up demand and people’s willingness to spend more. There are a lot of interesting insights from automotive dealers. A lot of first-time buyers are coming in to buy cars because they need personal transportation. Historically, post Diwali, you see a couple of weeks of low time and then in December, when the festive season kicks in, people take holidays or travel, overall economic activity picks up and there is a churn of money within the economy. We are getting the sense that that is on the way, based on our conversations with people in the entertainment and hotel industries. Bookings for the holiday season have been good.

Even when you track the credit card spends in the merchant categories, till August-September, there was nothing on the high-street retailers or the restaurants or hotels. That has started improving week-on-week. The other interesting point is that when we speak to builders, we see that the affordability index for property ownership is at its highest in the last decade.

There was a clamour for reviewing the zero-MDR policy in early 2020, but then it died out. How are banks moving on that piece now, considering it shaves off a part of your revenues?

My sense is that the government and the regulator are moving towards giving higher choice to the customer. Eventually, it’s the customer who will decide on his/her choice of product. Each product differentiation has some cost associated with it. We are seeing growth in digital payments and the entry of more players. There is already a fair bit of disruption happening in the payments space. We are observing the movement of MDR to zero or near-zero levels. The materiality of that is getting reduced as there are a host of other payment options.