Executive Summary:
This document addresses rising delinquencies in the microfinance sector in India, which have increased to Rs. 43,000 crore in FY 2024-25. It outlines the factors contributing to this increase, the assessed financial risk to various institutions, and the corrective framework in place by the Reserve Bank of India (RBI) to prevent further deterioration of microloan portfolios. The document references data from RBI's Financial Stability Report, June 2025.
Key Points / Main Content:
* **Delinquency Status:**
* Microfinance loan delinquencies increased significantly in FY 2024-25.
* Stressed assets in the microfinance sector increased from 4.3% in September 2024 to 6.2% in March 2025 (31-180 days past due - dpd).
* Stress in the banking sector's microfinance loan book increased from 4.7% in September 2024 to 6.5% in March 2025 (31-180 dpd).
* Borrower indebtedness, measured by the share of borrowers availing loans from three or more lenders, showed a declining trend.
* **Factors Contributing to Delinquencies:**
* Increased borrower indebtedness/overleveraging
* Weakening joint liability group structures
* Natural calamities
* **Financial Risk Assessment:**
* The overall resilience of the banking system has improved.
* The capital position of Non-Banking Financial Companies (NBFCs) remained above the regulatory minimum.
* **Corrective Framework by RBI:**
* Lenders must undertake appropriate credit assessment of borrowers.
* A ceiling of 50% is prescribed on monthly loan repayment obligations as a percentage of monthly income.
* Regulated Entities (REs) are required to have a board-approved interest rate policy.
* Interest rates and other charges shall not be usurious.
* Self-Regulatory Organizations (SROs) have issued guardrails for members, including capping total borrower indebtedness and limiting the number of lenders per borrower.
Impact Analysis:
**RBI:**
* *Impact:* Responsible for monitoring the microfinance sector and implementing corrective measures.
* *Action Required:* Continue monitoring microfinance activities, enforce existing regulations, and adapt strategies as needed.
**NBFC-MFIs and Small Finance Banks:**
* *Impact:* Subject to financial risks due to increased delinquencies; must adhere to RBI regulations.
* *Action Required:* Implement stringent credit assessment processes, adhere to interest rate policies, and manage loan portfolios to minimize stress.
**Microfinance Borrowers:**
* *Impact:* Protected from over-indebtedness through regulations on loan repayment obligations and limitations on the number of lenders.
* *Action Required:* Provide accurate information during credit assessments and manage borrowing responsibly to avoid over-indebtedness.
**SROs (SaDhan and MFIN):**
* *Impact:* Responsible for guiding their members in adhering to responsible lending practices.
* *Action Required:* Enforce guardrails for members, including capping total borrower indebtedness and limiting the number of lenders per borrower.
Key Entities Referenced
Lok Sabha: The lower house of the Parliament of India, where the question was raised.
Ministry of Finance: The Indian government ministry responsible for financial matters.
Reserve Bank of India (RBI): The central bank of India, responsible for regulating the microfinance sector.
Financial Stability Report, June 2025: A report by the RBI assessing the stability of the financial system, which includes analysis of the microfinance sector.
Small Industries Development Bank of India (SIDBI): A development financial institution in India, involved in the promotion, financing and development of the Micro, Small and Medium Enterprises (MSME) sector.
Non-Banking Financial Companies (NBFCs): Financial institutions that provide banking services without holding a banking license.
Microfinance Institutions (MFIs): Institutions that provide financial services to low-income populations.
Self-Regulatory Organizations (SROs): Organizations like SaDhan and Microfinance Industry Network (MFIN), that set guidelines for their members in the microfinance sector.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO.3624
ANSWERED ON MONDAY, 11th AUGUST, 2025/ 20 SRAVANA 1947 (SAKA)
RISING DELINQUENCIES IN MICROFINANCE SECTOR AND ASSOCIATED RISKS
3624. SHRI ASADUDDIN OWAISI:
SHRI GAURAV GOGOI:
Will the Minister of FINANCE be pleased to state:
(a) whether the Government is aware that microfinance loan delinquencies have increased by
163 per cent reaching Rs. 43,000 crore in FY 2024-25;
(b) the factors identified by the Government for this sharp increase in delinquencies, particularly
among small borrowers;
(c) whether the Government has assessed the financial risk poses to NBFC-MFIs, small finance
banks and the broader credit ecosystem; and
(d) whether the Government is considering any corrective framework to prevent further
deterioration in microloan portfolios and if so, the details thereof?
ANSWER
MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) to (b) Reserve Bank of India (RBI) continuously monitors the activities and performance of
microfinance sector. As reported in Financial Stability Report, June 2025 of RBI, the stressed
assets in the microfinance sector increased with 31-180 days past due (dpd) from 4.3 per cent in
September 2024 to 6.2 per cent in March 2025. Further, the banking sector saw an increase in
stress in their microfinance loan book with 31-180 dpd rising from 4.7 per cent in September
2024 to 6.5 per cent in March 2025. However, borrower indebtedness, measured by the share of
borrowers availing loans from three or more lenders, showed a declining trend.As informed by Small Industries Development Bank of India (SIDBI), the reason for increase in
microfinance delinquencies have generally been attributed to increase in indebtedness among
borrowers or overleveraging, weakening joint liability group structures, natural calamities, etc.
(c) Financial Stability Report, June 2025 has also reported that overall, the resilience of the
banking system has improved, as indicated by the banking stability indicator (BSI), which
strengthened during 2nd half of FY 2024-25 and the capital position of the non-banking financial
companies (NBFCs) remained well above the regulatory minimum.
(d) Microfinance Institutions (MFIs) are regulated by RBI and several initiatives aimed at timely
identification and rectification of stress in microloan portfolios have been taken by RBI which
inter-alia include:
i. The regulations issued by RBI require lenders to undertake appropriate credit assessment
of borrowers, including verifying their sources of income, household expenditure and
existing loans, before extending credit.
ii. To protect customers from over indebtedness, a ceiling of 50% on the monthly loan
repayment obligations as a percentage of monthly income has been prescribed.
iii. Regulated Entities (REs) are required to have a board-approved interest rate policy with
clearly delineated components. Further, the regulations prescribe that interest rates and
other charges shall not be usurious.
iv. Self-Regulatory Organizations (SROs) of the microfinance sector, viz., Sa-Dhan and
Microfinance Industry Network (MFIN), have issued guardrails for their members, which
include inter-alia, capping the total indebtedness of a borrower as well as limiting the
number of lenders that can give loans to a single borrower. Such interventions aid in
reducing the indebtedness of the borrowers.
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