Microfinance sector under stress as a portfolio in danger doubles despite loan caps

The worries of activa quality in the microfinance sector continue, even if they have voluntarily concluded borrowers access to a maximum of three lenders who start this tax year. Data released by the Microfinance Institutions Network (MFIN) shows the portfolio of the portfolio (par) in the 31-180 days of bucket rise to 5.4% at the end of June 2025, compared to 2.5% a year earlier, including technically debited accounts.

For banks in the segment of 31-180 days, par was 5.4% in June 2025, an increase of 2.5% in June 2024 but slightly better than 6.2% in March 2025.

Under NBFC-MFIS, the ratio was 6% in June 2025 versus 2.6% a year ago and 6.6% in March 2025.

For the total industry, PAR rose sharply than 180 days sharply to 13.6% in June 2025 compared to 7.6% a year earlier and 11.3% in March 2025.

Stress was also visible in the early delinquency buckets, with par 31-60 days at 1.1% versus 0.5% last year, par 61-90 days at 1.4% versus 0.7%, and par 91-180 days at 3.2% versus 1.2% a year ago.

In addition to increasing stress, the loan book of the sector has contracted. Excellent portfolios from NBFC-MFIS decreased by 18% on an annual basis to RS 1.38 Lakh Crore in June 2025, against RS 1.68 Lakh Crore. For banks, the decrease was 15.8% to RS 1.16 Lakh Crore compared to RS 1.38 Lakh Crore a year earlier. In general, the gross loan portfolio of the industry on an annual basis 7.5% to RS 3.53 Lakh Crore, with the total number of loan accounts to 12.5 crore of 14.9 crore. Funding is also delayed for the sector. NBFC-MFIS raised RS 12,781 Crore in debts during the first quarter of FY26, with a 19.9% ​​decrease of the same quarter last year. Banks contributed 81.9% of the total loans, followed by NBFCs with 8.4%. Equity Infusion was 34,582 Crore from 30 June 2025, a decrease of 6.2% on an annual basis.

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“It is a sign of relief that despite a serious fall in bank financing and the approval of tighter insurance, which has led to a contraction in the gross loan portfolio, and credit quality is recovering,” Dr. Alok Misra, CEO and director of Mfin. “The sector is subtly ready and needs liquidity to maintain the improvement.”

NBFC-MFIS continued to dominate the microfinance market with a portfolio share of 39%, followed by banks with 33%, small financial banks at 16%and NBFCs at 12%and no 1%entities, showed data from SA-Dhan.