Microfinance sector shows signs of stress as delinquency rates rise

The Reserve Bank of India's Financial Stability Report of December 2024 had observed that the microfinance sector is showing rising delinquencies across lenders and ticket sizes

The microfinance sector witnessed quarterly degrowth of 4.3 per cent in the book, while year-on-year (YoY) growth stood at 7.6 per cent as of September 2024. The “live customer” base grew by 8.9 per cent during this period but dipped 1.1 per cent on a quarter-on-quarter (QoQ) basis.  Delinquencies (portfolio-at-risk or PAR) in the 31-180 days-past-due (DPD) deteriorated Q-o-Q across the top 10 states, the highest rates being in Odisha, Uttar Pradesh and Tamil Nadu. 

  It may be recalled the Reserve Bank of India’s Financial Stability Report of December 2024 had observed that the microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes.   During H1FY25, the share of stressed assets increased, with those PAR31-180 DPD bucket rising to 4.30 per cent in September 2024 from 2.15 per cent in March 2024. Importantly, impairment remained high among borrowers who had availed of loans from multiple lenders and those with higher credit exposure.