India’s Microfinance Sector Stabilises As Delinquencies Fall To 2.1%: Equifax Report

New Delhi, Jun 30 (KNN) India's microfinance industry is consolidating around materially stronger credit quality, with the 30-days-past-due (DPD) delinquency rate falling sharply to 2.1 per cent as of May 2026, down from 6.3 per cent a year earlier, even as the overall sector continued to shrink in size, according to the latest Microfinance Insights report released by Equifax.

The total industry portfolio outstanding stood at Rs 3,33,110 crore as of 31 May 2026, a 9 per cent year-on-year (YoY) contraction from Rs 3,67,897 crore a year earlier. The decline reflects a deliberate shift by lenders toward tighter underwriting and risk-calibrated growth rather than volume expansion. The number of active loans across the industry fell more sharply still, down 22 per cent YoY to 10.09 crore.

Subhankar Mishra, Interim Managing Director, Equifax Credit Information Services, said, "The decline in 30+ delinquency to 2.1 per cent, less than half of what it was a year ago, reflects a sector that has worked through a difficult stress cycle and is emerging with materially stronger underwriting discipline. Lenders are clearly prioritising portfolio quality over scale, as seen in the continued contraction in disbursement volumes alongside flat disbursement value.” 

“NBFCs and NBFC-MFIs are leading this shift, and the consistent improvement across early and mid-stage delinquency buckets, even as legacy 180+ stress is worked through, suggests the foundations for sustainable, lower-risk growth are being put in place,” Mishra added.

Disbursements Decline in Volume, Hold Steady in Value

Between June 2025 and May 2026, disbursement volumes fell 15 per cent compared with the same period a year earlier, while disbursed value remained nearly flat, edging up just 0.1 per cent to Rs 2,55,890 crore. The combination of fewer loans but steady aggregate value suggests lenders are issuing larger, more carefully vetted loans rather than expanding their borrower base aggressively.

Asset Quality Improves Across Lender Categories

The industry's 90-plus DPD delinquency rate eased to 1.4 per cent, down 246 basis points year-on-year, while 30-plus DPD delinquency improved by 419 basis points. 

NBFCs recorded the lowest delinquency across early and mid-stage buckets — 1.5 per cent at 30-plus DPD and 0.8 per cent at 90-plus DPD — outperforming Non-Banking Financial Company - Micro Finance Institution (NBFC-MFIs), private banks, and small finance banks (SFBs). 

However, 180-plus DPD delinquency, which captures legacy stress still working through the system, rose 381 basis points YoY to 16.0 per cent, with SFBs (25.2 per cent) and private banks (21.2 per cent) carrying the highest late-stage stress.

NBFC-MFIs continued to anchor the industry's lending activity, accounting for 43 per cent of active loans and portfolio outstanding, and driving 49 per cent of disbursement volume and 45 per cent of disbursement value over the latest 12-month period — up from 40 per cent and 39 per cent, respectively, a year earlier. 

Private banks' share contracted over the same period, while NBFCs and SFBs modestly expanded their footprint.

Regional Shifts

The market remains geographically concentrated, with the top five states accounting for 57 per cent of total portfolio outstanding. In a notable shift, Uttar Pradesh overtook Tamil Nadu in May 2026 to become the second-largest state by portfolio outstanding, behind Bihar. 

Among the top 10 states, Odisha recorded the lowest early and mid-stage delinquency levels in May 2026, at 1.4 per cent (30-plus DPD) and 0.9 per cent (90-plus DPD), highlighting continued regional divergence in credit performance even as the broader trend points to nationwide improvement in early-stage asset quality.

The report noted that asset-quality gains were broad-based rather than concentrated in select segments, with all four major lender categories — NBFC-MFIs, private banks, SFBs, and NBFCs — recording steady reductions in 30-plus delinquency every quarter over the past year.

(KNN Bureau)