ICRA expects the asset quality for non-banking financial companies-microfinance institutions (NBFC-MFIs) to remain monitorable despite easing stress in FY2026. Suboptimal rainfall and elevated fertiliser prices amid the West Asia conflict could suppress agricultural incomes and weaken repayment capacity of the borrowers, thereby potentially impacting asset quality. ICRA anticipates AUM growth for NBFC-MFIs to rebound in FY2027 to 15-17% from muted growth in F2026, driven by improved asset quality and eased qualifying asset criteria. ICRA has a Negative outlook considering relatively subdued earnings, monitorable asset quality, and macro-economic uncertainties.

• Delinquencies have started to improve with the 90+ dpd declining by 40 bps in Q4 FY2026 and the 0+ dpd by 150 bps, supported by improved collections, write-offs and portfolio sales to ARCs. However, overall stress levels remain elevated vis-à-vis historical averages.
• Borrower overleveraging has reduced materially due to the implementation of industry guardrails, with ~95% of borrowers now associated with up to three lenders as of March 2026.