The economy of the villages has been badly affected by the second wave of Corona. The lockdown and night curfew imposed by the states to prevent infection has caused huge losses to rural business and employment. As a result, majority of the rural population is not in a position to repay the loan. Due to this, the cases of loan default can increase rapidly. This information has been received from the report of India Ratings.
According to the report, the number of loan defaulters in rural areas is expected to increase this year. Due to the impact of demand, there is going to be a crisis situation in front of banks for the whole year regarding loan collection. This has been confirmed by those who have not defaulted the EMI of the loan in the month of April. Their number has increased rapidly. There is an apprehension that the loan pool collection (June payment) for the month of May will also decline. In all transactions assessed by the rating agency, it was observed that loan collections declined to 73 per cent in April as against 84 per cent in the previous month. Significantly, many banks were forced to stop door-to-door collections after many collection agents, bank employees and borrowers fell ill in the rapid second wave that spread through the middle of March, April and May.
Increased bounce in auto debit transactions
Due to the second wave of Corona, the cases of auto debit payments bounced for the second consecutive month in May after April. This is an indication that financial pressure has increased on the people due to the disruption in economic activities. According to data from the National Automated Clearing House (NACH), out of 8.57 crore transactions in May, 35.91 per cent or 3.08 crore transactions were unsuccessful. There were 8.54 crore auto debit transactions in April out of which 5.63 crore were successful while 2.908 crore were unsuccessful. Thus the number of unsuccessful transactions in that month stood at 34.05 per cent. The highest level of auto debit transaction failure cases was witnessed in June last year when the failure rate went above 45 per cent.
There was improvement from December to March
When the second wave started in March, the percentage of bouncing of auto debit transactions as compared to total transactions was low. Only 32.7 per cent of auto-debit payment transactions were unsuccessful that month. On the other hand, the percentage of failed auto debit requests has been declining steadily since December and remained below 40 per cent indicating high regularity in payments of monthly installment (EMI), utility and insurance premiums by consumers.
Companies pulled out of taking loans
In the midst of the Corona crisis, companies have pulled out of investment due to lack of demand. Due to this, companies have cut loans of Rs 1.70 lakh crore. Companies making the cut include those from the oil, steel, fertilizer and cement sectors. According to a report, out of more than 1,000 listed entities, the top 15 sectors had a debt shortfall of 1.70. According to the report, the corporate desire for fresh investments is currently not there as the economy is still recovering from the second wave. The investment outlook is sluggish as per the new investment announcements, with a decline of 67% in FY21, according to CMIE. Companies are taking advantage of the short term structure of interest rates to facilitate lower finance costs from the capital market and reduce their debt liabilities. Also, the top 1,000 companies have increased their cash and bank balances by about 35% in March this year as compared to March 2020.