Stress in microfinance sector doubles in April to September period: RBI

Earlier, the RBI had warned that some NBFCs, including MFIs, were adopting a "growth-at-any-cost" approach and cautioned that regulatory action would be taken if necessary

The Reserve Bank of India (RBI) on Monday reported that stress in the microfinance sector doubled during the April to September period, with the share of stressed assets in the 31-180 days past due (DPD) category increasing from 2.15 per cent to 4.30 per cent. Additionally, there was a notable rise in borrowers availing loans from multiple lenders. 

According to the Financial Stability Report, the share of stressed assets in the microfinance (MFI) sector increased during the April to September period of FY25, with 31-180 days DPD rising to 4.30 per cent in September 2024 from 2.15 per cent in March 2024. The RBI stated in the report: “The microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes. Borrowers who availed loans from multiple lenders with high credit exposure and impairment also continued to be high.” 

Even as delinquencies increased, borrower indebtedness also rose, with the share of borrowers availing loans from four or more lenders increasing over the last three years. The share rose from 3.6 per cent in September 2021 to 5.8 per cent in September 2024. Meanwhile, the quarterly average ticket size of microfinance loan disbursements increased by 43 per cent during this period, from Rs 35,299 in Q2 FY22 to Rs 50,430 in Q2 FY25. 

The RBI also noted that certain non-banking financial company microfinance institutions (NBFC-MFIs) and other NBFCs were found to be charging exceedingly high interest rates amid the post-pandemic surge in credit to the microfinance sector, prompting supervisory actions in October 2024.  

The yield on NBFC-MFI loans has remained elevated, particularly since June 2023.

 

In October 2024, the RBI barred Asirvad Microfinance, Arohan Financial Services, DMI Finance, and Navi Finserv from sanctioning and disbursing loans due to exorbitant interest rates charged to borrowers. In December 2024, after multiple rounds of rectification, the RBI lifted the ban imposed on Navi Finserv.