Rural stress hit microfin show, it could improve in FY26: ICRA
delinquencies in microfinance loans was mainly due to factors such as political disruptions, weather events, and excessive lending, according to industry executives speaking at a webinar hosted by rating agency Icra.
Rural households have increasingly prioritised essential expenses and secured loan repayments over microfinance obligations in recent months, contributing to rising defaults. However, executives are optimistic about an improvement in the sector's performance in the next fiscal year.
«Post-Covid, job losses and income disruptions significantly impacted borrowers. While liquidity remained abundant, wage growth has lagged, and high food inflation has forced rural households to focus on purchasing essentials and repaying secured loans like home and gold loans over microfinance,» said Sadaf Sayeed, CEO of Muthoot Microfin. «Leverage has risen due to factors such as political events, weather disturbances, and over-lending.»
Asset Quality Deterioration and Regulatory Actions
The microfinance sector has experienced a sharp decline in asset quality during the first half of the fiscal year, driven by issues such as heatwaves, prolonged general elections, and customer overleveraging. Gross non-performing assets (NPA) in the sector reached an 18-month high of 11.6% at the end of September.
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