Micro Finance Institutions

Persistent asset quality challenges to dampen profitability and growth expectations in FY2026

Half-yearly Update 29 Aug 2025
  • 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.
Exhibit: Trend in delinquencies of NBFC-MFIs (ICRA’s sample set of companies*)

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


Download Summary Subscribe to Full Report
Ask Our Industry Analyst Get in touch with our Business Representative
Please enter your name
Please enter your mobile number
Please enter your email id
Please enter your company name
Name should not be greater than 50 characters
Please choose sector
Please enter your query
Query to have atleast ten characters
Query should not be greater than 1,000 characters
Please verify you are not a Robot.