Asset Quality Review

India's microfinance sector is seeing early revival signs as lenders prioritise asset quality and portfolio consolidation over aggressive loan growth after two years of slowdown

The SIDBI-Equifax report said the sector's portfolio grew 3 per cent quarter-on-quarter in the March quarter, while 30-plus delinquency fell sharply

S&P Global Market Intelligence expects asset quality at major lenders to improve further, even as margins remain under pressure from changing interest-rate dynamics

Indian Bank reported a 5 per cent rise in Q4 FY26 profit, aided by strong NII growth and improved asset quality, though non-interest income declined during the quarter

Indian Overseas Bank reported a 43 per cent rise in Q4 FY26 profit, supported by higher NII and lower provisions, though margins moderated during the quarter

Credit extended by NBFCs has been rising over the years, underscoring their growing importance in financial intermediation

After a year of margin pressure and muted growth, banks head into 2026 expecting NIM stabilisation, benign asset quality and a gradual revival in credit, aided by rate cuts and foreign inflows

On the bourses, SBI share price rose as much as 1.76 per cent to an intraday high of ₹818.75 per share.

Asset quality stress in the NBFC-MFI sector surged in 2024-25 amid borrower overleveraging as well as operational challenges, and the pressure is expected to persist in first half of the current fiscal, a report said. ICRA's July 2025 analysis on the Non-Banking Financial Company - Microfinance Institution (NBFC-MFI) said that the AUM of the sector declined 12 per cent in FY2025. However, the rating agency said it anticipates growth to resume in FY2026 to 10-15 per cent. As per the report, asset quality stress surged in FY25 largely due to borrower overleveraging, sociopolitical disruptions, and operational challenges. ICRA has a negative outlook on the sector, given the lingering asset quality stress and subdued profitability. Overall stress in FY2025 surged to 15.3 per cent vis--vis opening stressed pool of 5.9 per cent as of March 2024 on account of significant deterioration in asset quality in the microfinance sector, the report said. Given the deterioration in asset quality,

Despite private banks performing strongly in 2025 so far, the last three months have seen a sharp reversal, with PSU banks taking the lead.

Quality funds tend to be less volatile and offer downside protection and often perform better in a bear market due to the stable earnings

Union Bank of India posted a 50.57 per cent rise in Q4FY25 net profit to Rs 4,984 crore, aided by an 18.1 per cent growth in non-interest income and improved asset quality

Lower interest rates, robust economic conditions to bolster near-term asset quality

UCO Bank shares jumped after the company reported healthy Q2FY25 results. The bank's net profit jumped 50 per cent year-on-year (Y-o-Y) to Rs 602.7 cr in Q2FY25, from Rs 401.7 crore in Q2FY24

The fall in the share price of Suryoday SFB was triggered by weak asset quality in the September quarter (Q2FY25).

The asset quality of government-owned NBFCs and non-government-owned middle layer NBFCs focused on the retail line of business was also higher

Heat wave, Lok Sabha polls hit collections, asset quality in Q1

CLSA expects private sector banks, which have been stock market laggards over the past few months, to give better returns ahead, given a good business outlook and inexpensive valuations

Worries about the impact of relatively lower capital adequacy levels, comfort of loan mix due to presence of unsecured loans, and NIM contraction cycle have been weighing on the stock

During the period under review, the bank's total income rose 19 per cent to Rs 6,941.5 crore compared to Rs 5,854 crore during the same quarter last fiscal