FinMin to hold meeting with MFI players on Wed amid rising bad loans

Finance Ministry will hold a meeting with microfinance institutions (MFIs) on Wednesday amid rising bad loans and delinquencies across all types of lenders in the sector.

According to sources, the Department of Financial Services Secretary is likely to chair the meeting with senior officials of MFIs here.

The meeting assumes significance as it comes with the sector showing signs of stress and rising delinquencies.

Credit to the microfinance sector by banks (including SFBs), NBFC-MFIs and other NBFCs has decelerated during the current financial year so far after witnessing rapid growth during the last three years, according to a latest report of the Reserve Bank.

"The microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes. During H1:2024-25, share of stressed assets increased, with 31-180 days past due (dpd) rising from 2.15 per cent in March 2024 to 4.30 per cent in September 2024," said the RBI's Financial Stability Report, December 2024.

Importantly, among borrowers who had availed loans from multiple lenders and those with higher credit exposure, impairment remained high.

RBI report said that alongside rising delinquencies, borrower indebtedness has risen notably: the share of borrowers availing loans from four or more lenders has increased from 3.6 per cent to 5.8 per cent during the last three years (September 2024 over September 2021).

Also, the quarterly average ticket size of microfinance loans disbursal has risen by 43 per cent over this period (Rs 35,299 in Q2:2021-22 to Rs 50,430 in Q2:2024-25).

A comparison across select Indian states indicates that indebtedness levels are unevenly distributed, with some regions exceeding the overall average, it said.