In the fourth quarter of FY2024–25, microfinance institutions (MFIs) in India wrote off ₹2,440 crore in bad loans, signaling escalating financial stress in rural credit markets. According to industry analysts, the mounting non-performing assets (NPAs) may force lenders to tighten disbursements — a move that could adversely impact rural consumption and small enterprise activity.
"The write-offs indicate deeper structural vulnerabilities in rural borrowing," said Rachit Mehra, head of financial research at IndFin Analytics. "Delayed monsoons, inflation, and post-pandemic aftershocks are hitting repayment cycles hard."
📉 Key Data Points:
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Total write-offs in Q4 FY25: ₹2,440 crore
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Top states affected: Bihar, Uttar Pradesh, West Bengal, Odisha
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Average portfolio at risk (>90 days): 6.9% (vs 5.3% last year)
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Loan growth (YoY): Down to 8% from 13% a year earlier
🚜 Rural Lending Faces Headwinds
India’s microfinance sector — which serves over 60 million low-income borrowers, mostly women in rural areas — is seeing higher default rates amid fragile income recovery in agriculture and informal sectors.
Industry experts say MFIs may now shift toward urban-centric or collateral-backed lending until rural demand stabilizes.
“Reduced credit flow can lower household spending on essentials like farm inputs, education, and healthcare,” warned Sneha Kulkarni, rural economist at NITI Insights.
💬 Government & Regulator Response
While the Reserve Bank of India (RBI) has advised MFIs to strengthen risk-based pricing and provisioning norms, no immediate relief measures have been announced.
Some MFIs are seeking sector-specific loan restructuring schemes from state governments to prevent further credit deterioration.
🔮 Outlook for FY26
Analysts expect loan disbursement growth to remain below 10% in the next two quarters unless macroeconomic conditions improve.
“MFIs will need to balance between financial sustainability and social impact more than ever,” said Priya Jindal, CEO of Saathi Credit Foundation.