NBFC's micro loan stress increases in FY25, says RBI report

RBI's FSR shows NBFCs' stressed assets rose sharply as write-offs jumped and credit risks increased, especially in small-ticket personal loans below ₹50,000

This report has been updated    The share of stressed assets of non-banking financial companies in the microfinance sector (including that of NBFC-MFIs) increased to 5.9 per cent in March 2025 from 3.9 per cent in September 2024, according to the Reserve Bank of India’s Financial Stability Report (FSR).  Slippage ratios among upper layer NBFCs have been rising, along with an upward trend in loan write-offs.

 

Notably, write-offs for upper layer NBFCs surged to 72.9 per cent in March 2025 from about 50 per cent in June 2022.

 

For middle layer NBFCs, write-offs increased to 38.7 per cent from approximately 20 per cent during the same period. As a result, combined write-offs for both layers rose to 46.4 per cent in March 2025, up from nearly 20 per cent in June 2022. 

 

The FSR noted a marginal deterioration in the Non-Banking Stability Indicator since December 2024, driven by increased risks associated with cost of funds and borrowing. Nonetheless, the RBI maintained that the NBFC sector remains resilient and well-positioned to support economic growth, backed by relatively healthy balance sheets.

 

“There has been a marginal deterioration in the non-banking stability indicator since the December 2024 FSR, as two of the five dimensions; cost of funds and cost of borrowings showed an increase in risk. Overall, the NBFC sector remains resilient, and the sector is well positioned to support economic growth aided by healthy balance sheets,” the report said.

 

The report further highlighted that NBFCs, including housing finance companies (HFCs) and fintech firms, account for 84.3 per cent of personal loans below ₹50,000, according to the latest Financial Stability Report (FSR).

 

The report highlights rising credit risk in this segment, noting that around 10 per cent of borrowers availing personal loans under ₹50,000 already had overdue loans. 

 

“Over two-thirds of borrowers who took personal loans in the last quarter had more than three active loans at the time of origination, indicating growing debt stress among small-ticket borrowers,” the report said.

 

While bank lending to NBFCs has declined, bank finance remains the dominant funding source for the sector. However, reduced access to bank borrowing has pushed up the overall cost of funds and foreign currency borrowings.

 

Credit growth for upper and middle layer NBFCs rose to 20.7 per cent year-on-year in March 2025, up from 16 per cent in September 2024, though still below the pace recorded in September 2023. The acceleration in credit growth was mainly driven by upper layer NBFCs, partly due to the reclassification of a housing finance company as an NBFC-UL and the merger of a middle layer NBFC with an upper layer entity.