• Delinquencies decreased in Q1 FY2026 due to significant write-offs and the sale of portfolio to ARCs by NBFC-MFIs. In FY2025, 0+dpd and 90+dpd increased by ~510 bps and ~230 bps to ~9.2% and ~4.6%, respectively. The sector is facing challenges stemming from borrower overleveraging, sociopolitical disruptions and operational challenges, which are largely related to employee attrition.
• Nevertheless, the elevated overall overdue book poses significant downside risks to the near-term loan quality of the sector. Delinquencies are expected to remain elevated in H1 FY2026 amid rising rejection rates, resulting in lower incremental credit and liquidity available with borrowers.
• The share of NBFC-MFI borrowers with loans from more than three lenders fell to 17% by March 2025 (~14% in June 2025) from 25% in September 2024, following the implementation of guardrails for responsible lending.
• Nonetheless, given the growth outlook, ICRA expects the industry to maintain adequate leverage amid the moderate capital requirement. Further, NBFC-MFIs are well-placed from an asset-liability management (ALM) perspective with no mismatches up to at least a year, owing to the relatively shorter tenure of loans.

Source: ICRA Research; E – Estimated; dpd – days past due. *ICRA’s sample set of companies consists of 22-26 MFIs at different months, contributing 80-90% to the AUM of NBFC-MFIs