L&T Finance, Utkarsh SFB and Fusion Finance rise to 11% as Bihar passes MFI Bill 2026. This is what causes pain

Shares of Utkarsh Small Finance Bank, L&T Finance and Fusion Finance plunged to 11% on Friday after the Bihar Assembly passed the MFI Bill 2026, which sought to tighten supervision of microfinance institutions and curb coercive recovery practices.Fusion Finance was the worst hit, falling 11% to the day’s low of Rs 181 on the BSE. Shares of L&T Finance and Utkarsh Small Finance Bank fell 5% each to their lows of Rs 286 and Rs 14.10 respectively.

The Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026, requires lenders to obtain prior approval from the state finance ministry before disbursing loans, prevents lending at exorbitant rates with aggregate interest not exceeding 100% of the principal amount, and also limits the exposure of lenders to two MFIs per borrower.It also requires microfinance companies to register with the state government even if they are already licensed by the RBI.

This development is becoming increasingly important with Bihar accounting for around 15% of the total MFI loan portfolio, making it the largest state exposure to the segment.

Wall Street major Morgan Stanley has noted that while this move could weigh on investor sentiment in the short term, the actual financial impact may be limited. “Lenders may, however, maintain or trim their microfinance exposure amid continued earnings and valuation volatility,” the global brokerage added.

“The Bihar MFI Bill has introduced a new layer of regulatory uncertainty for small finance banks, especially those with significant exposure to microfinance in the state. While the immediate impact is sentiment driven rather than balance sheet disruptive, the pre-approval requirement before loan disbursements could slow credit growth and increase compliance costs at the margin. Markets are reacting to the precedent risk. If similar measures are replicated in other states, it could trigger a reassessment of growth assumptions and valuation multiples in the SFB space justify,” says Sourav Choudhary, MD, Raghunath Capital. Also read | Silver ETFs plummet 15% in one month, while gold ETFs gain 3%. What should investors do?

According to a report by CNBC-TV18, Utkarsh Small Finance Bank has the highest exposure to Bihar at 46%, followed by Fusion Finance at 19%. L&T Finance told CNBC-TV18 that 17% of its MFI portfolio comes from Bihar, while Satin Creditcare and Spandana Sphoorty each have 13% exposure to the state.

The media report also said that IIFL warned that between 5% and 45% of exposure of MFIs or MSMEs in Bihar could see a sharp rise in delinquencies, drawing parallels with Karnataka. In that situation, the Portfolio at Risk (PAR) of more than 30 days has more than tripled within two quarters of the Karnataka MFI Act, highlighting the vulnerability of borrowers under stricter regulations.

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