India’s microfinance sector is under pressure as bad loans, or non-performing assets (NPAs), continue to rise. In response to a Parliamentary question on Monday, Minister of State for Finance Pankaj Chaudhary acknowledged that the sector is “showing signs of stress in the current financial year,” with overdue loans piling up.
The Reserve Bank of India (RBI) has been closely monitoring the situation and has introduced measures to address stressed loans and identify risks early, Chaudhary added. However, this has led to a slowdown in lending to microfinance institutions (MFIs) this financial year.
Decline in NPAs in March 2024
RBI data shows that NPAs for small finance banks stood at ₹5,590 crore in March 2024, down from ₹8,608 crore a year earlier. For NBFC-MFIs, NPAs reached ₹2,982 crore. Small finance banks also wrote off ₹5,543 crore in bad loans last year to clean their books, though they can still attempt to recover the amount.
Data of Small Finance Banks and NBFCs-MFIs (in Upper and Middle Layer) – in cr rupees
Source- RBI
Chaudhary also noted that the RBI has instructed banks and NBFCs to tighten lending norms and improve loan recovery efforts. It is also engaging with supervisors and MFI Self-Regulatory Organisations to ensure compliance with guidelines, such as proper household income verification. If these are not followed, the RBI may take action.
When asked whether the government would assist MFIs with their bad loans or investigate potential underreporting of NPAs, Chaudhary said, “At present, no such proposal is under consideration.” He added that the RBI already has audit mechanisms and data monitoring systems in place to ensure transparency.
First Published: Mar 10, 2025 3:27 PM IST
