YES Securities recently analysed National Automated Clearing House (NACH) transactions, which revealed a notable increase in sponsor bank decline rates for July 2025. The year-on-year (YoY) comparison highlights significant rises for several banks, including DCB Bank, City Union Bank (CUB), Indian Bank (INBK), and Union Bank (UNBK), with respective increases of 17.4, 9.2, 9.0, and 7.5 percentage points, respectively, it said.
The evaluation of absolute decline rates for the same period places DCB, INBK, IndusInd Bank (IIB), Federal Bank (FED), RBL Bank (RBL), IDFC First Bank (IDFCB), and CUB at the top, with rates of 53.2%, 44.3%, 42.0%, 41.0%, 40.8%, 37.6%, and 35.0%, respectively. Such high levels suggest complexities in analysing potential slippages based on these rates. The intricate nature of these numbers indicates that while they reflect certain financial pressures, they also require careful interpretation to understand the broader economic implications it said.
Interestingly, while sponsor banks see an uptick, the decline rates for destination banks have decreased across the board when compared to July 2024. Despite this, the absolute levels remain considerable for IIB, INBK, FED, and CUB, which suggests that while some improvements are noted, challenges remain, the brokerage noted.
The lack of segment-specific disclosures leaves room for speculation on what might be driving these increases. Likely contributors could be small-ticket MSME and home finance sectors, yet specifics remain unconfirmed. This lack of clarity underscores the need for more detailed data to better understand the underlying factors affecting these rates.
YES Securities has noted that while decline rates do not solely result from loan defaults, the rising figures may offer some directional insights into potential financial challenges. This scenario underscores the need for further analysis, as these rates could be indicative of broader economic trends that warrant closer scrutiny.
The role of sponsor banks, responsible for initiating NACH transactions on behalf of corporates, and destination banks, which process incoming files, is crucial in understanding these trends. They collectively reflect the financial health and transaction efficiency within the banking sector, providing a vital lens through which to view the current financial landscape.
The analysis also highlights preferred and less-preferred entities, with a penchant for Bank of Baroda (BOB), State Bank of India (SBI), Axis Bank (AXSB), FED, INBK, and ICICI Bank. Conversely, CUB, HDFC Bank, RBL, DCB, and IDFCB are less favoured, indicating possible strategic shifts or concerns. These preferences highlight the varying levels of confidence in different institutions, which could influence future investment and operational strategies.
In the PSU Basked YES Securities has a ‘buy’ rating on Bank of Baroda (Target Price: Rs 345), State Bank of India (Target Price: Rs 1,100), Federal Bank (Target Price: Rs 250) and Indian Bank (Target Price: Rs 815).
In the private banks, the brokerage has suggested to ‘buy’ Axis Bank (Target Price: Rs 1,500), IndusInd Bank (Target Price: Rs 975), Kotak Mahindra Bank (Target Price: Rs 2,500), Karur Vysya Bank (Target Price: Rs 260), ICICI Bank (Target Price: Rs 1,650), CSB Bank (Target Price: Rs 400).
YES Securities has an ‘add’ rating on HDFC Bank (Target Price: Rs 1,150), City Union Bank (Target Price: Rs 235), DCB Bank (Target Price: Rs 140), RBL Bank (Target Price: Rs 140) and IDFC First Bank (Target Price: Rs 80).