Credit to the microfinance sector declined sequentially for the sixth consecutive quarter and registered a 9.3% year-on-year fall in the first half of the current financial year.
What does RBI’s Financial Stability Report say?
According to the RBI’s Financial Stability Report, bank credit, which forms 47.7% of the total credit outstanding to the microfinance sector, contracted even sharply by 10.6% during the first half of the current financial year.
At the same time, asset quality is showing signs of improvement with the ratio of stressed assets declining in three successive quarters through September 2025.
Rise in borrower indebtedness
This shows regulatory prudence. However, borrower indebtedness, measured by the share of borrowers availing loans from three or more lenders, rose marginally in the quarter ended September.