Asset Quality Stress Surges in NBFC-MFI Sector Amid Operational Challenges
The NBFC-MFI sector witnessed a surge in asset quality stress in FY2025 due to borrower overleveraging and operational challenges. ICRA's report indicates a decline in AUM by 12% and anticipates a recovery in FY2026. A recent RBI circular might enhance loan diversity and reduce credit risks.
- Country:
- India
The NBFC-MFI sector is grappling with increased asset quality stress, as outlined in ICRA's July 2025 report. Rising borrower overleveraging and operational difficulties led to a significant decline in the sector's Assets Under Management (AUM) by 12% in FY2025, after a robust growth of 29% in FY2024.
According to the report, the sector's asset quality stress deterioration is linked to socio-political disruptions and increased borrower rejection rates. Consequently, ICRA has assigned a negative outlook to the sector, citing the lingering pressure on asset quality and a reduction in profitability.
Looking forward, a new RBI circular mandating NBFC-MFIs to maintain a lower qualifying assets threshold could diversify loan portfolios, improving credit risk profiles. Furthermore, ICRA expects growth to resume in FY2026, potentially boosting stability in this financially crucial sector.
(With inputs from agencies.)
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