Lok Sabha Question No. 3624 (UNSTARRED), answered on 2025-08-11
Subject: Rising Delinquencies in Microfinance Sector and Associated Risks
Ministry: FINANCE
Asked by: Shri Gaurav Gogoi, Shri Asaduddin Owaisi

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO.3624

ANSWERED ON MONDAY, 11 th  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 2 nd  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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