The shift comes as the overall microfinance sector continues to consolidate after a period of stress related to overleveraging and rising borrower delinquency | Photo credit: REUTERS
Banks are rapidly losing ground in India’s microfinance market, with their share of the industry’s outstanding loan portfolio falling to 21.8 percent in September 2026 from 31.3 percent a year earlier, as lenders retreat from the segment amid tighter risk controls and sector recalibration, according to credit information bureaus. CRIF High Mark
It showed the banks’ microfinance portfolio shrank by 34 percent year-on-year to ₹71,500 crore (₹1.08 lakh crore) at the end of September, marking the steepest decline among lenders. In contrast, the NBFC-MFI specialist increased its market share to 44.7 percent from 38.8 percent a year ago, with its loan book growing 9.4 percent to ₹1.47 lakh crore (₹1.34 lakh crore).
The shift comes as the microfinance sector as a whole continues to consolidate after a period of stress related to borrower overleveraging and rising delinquency. Overall, the industry’s gross loan portfolio declined by 5 percent year-on-year to ₹3.28 lakh crore in September, while the number of active loans fell by 22.4 percent and the direct borrower base fell by 15 percent.
Better discipline
Despite the contraction, lenders are showing signs of better discipline, with asset quality generally stable. Portfolio-risk in the past 31-90 days because the bucket remained unchanged at 0.8 percent between June and September, while the bucket 91-180 days also remained steady at 0.8 percent, according to the credit bureau.
The data also shows more options for bigger ticket loans. The average loan size rose 17.5 percent year-on-year to ₹63,100, while loans above ₹1 lakh recorded the fastest growth, up 41.3 percent from a year ago. More than 70 percent of these loans are given to customers with similar loans.
Loan Book
Country-wise trends remain mixed, with most major microfinance markets reporting significant portfolio declines amid tighter credit standards. Tamil Nadu was an exception, recording a 3.7 percent increase in the loan book while also showing an increase in delinquency rates.
Meanwhile, overall, monthly disbursements stood at ₹56,956 crore in the September quarter, down 7.5 percent sequentially but 5.1 percent over a year ago, indicating lenders remain selective even as demand gradually rebounds. NBFC-MFIs accounted for nearly half of all new disbursements during the quarter.
Published on November 5, 2026