THE STRESS IN the microfinance sector may be easing, with lenders ranging from large microfinance institutions to universal banks and small finance banks reporting an uptick in fresh loan disbursements and lower slippages during the latest quarter.
CreditAccess Grameen, the country’s largest microfinance NBFC, reported a 13.4% year-on-year increase in loan disbursements to ₹5,767 crore, while its gross loan portfolio expanded 8% to ₹26,566 crore at the end of the third quarter. The lender also returned to profitability, posting a net profit of ₹252.09 crore compared with a net loss of ₹99.52 crore a year earlier, aided by lower bad loan provisions.
“We have witnessed normalisation in the asset quality trends across operating geographies, enabling us to re-focus on growth with confidence,” said Ganesh Narayanan, MD & CEO of CreditAccess Grameen.
The lender’s PAR 15+ accretion — loans overdue by more than 15 days — declined sharply to 18 basis points in December 2025 from 47 basis points in September 2025, with January 2026 showing similar trends.
This improvement is broad-based, with Karnataka witnessing a notable recovery, as asset quality reverted to historical levels, he added.
“May saw the peak in slippages in microfinance. Since then, we are seeing a month-on-month decline. Clearly, the MFI space is improving,” said KVS Manian, MD & CEO of Federal Bank, during the bank’s Q3 earnings briefing. Federal Bank’s MFI advances edged up to ₹4,064 crore from ₹4,023 crore in the previous quarter.
Executive Director Harsh Dugar noted a movement from higher overdue buckets to lower ones, adding that recoveries in the NPA book of MFIs have increased, indicating gradual improvement in asset quality.
The pickup in fresh disbursements comes after a prolonged funding squeeze and tighter lending norms, which had shrunk the microfinance loan book, pushing over five million micro-borrowers out of formal finance. The MFI industry’s portfolio contracted for the sixth straight quarter to ₹3.40 lakh crore, registering a 17% year-on-year decline as of September 2025.
SUSTAINABLE RECOVERY
MFI advances / loan book (₹ crore)
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