Mumbai: The Reserve Bank of India (RBI) on Monday flagged risks in microfinance and consumer credit, which constitute 15% of the total scheduled commercial bank loans, with delinquency rates reaching 8.2% in small personal loans and 3.8–4.3% in microfinance. The central bank, in its December 2024 Financial Stability Report released on Monday, noted that borrowers who had availed loans from multiple lenders and those with high credit exposure showed significant impairment.
“The microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes. During H1:2024-25, the share of stressed assets increased, with 31–180 days past due (dpd) rising from 2.15% in March 2024 to 4.30% in September 2024. Importantly, among borrowers who had availed loans from multiple lenders and those with higher credit exposure, impairment remained high.”
Alongside rising delinquencies, borrower indebtedness has risen notably. The share of borrowers availing loans from four or more lenders has increased from 3.6% to 5.8% during the last three years (September 2024 over September 2021). Additionally, the quarterly average ticket size of microfinance loan disbursals has risen by 43% over this period (₹35,299 in Q2:2021-22 to ₹50,430 in Q2:2024-25).
The report also noted rising impairment in unsecured retail loan portfolios such as personal loans and credit cards. It highlighted that upgradation is declining and slippage from SMA-2 (repayment overdue between 61 and 90 days) to NPAs is on the rise.
“Nearly half of the borrowers availing credit card and personal loans have another live retail loan outstanding, which are often high-ticket loans (i.e., housing and/or vehicle loans). Given that a default in any loan category results in other loans of the same borrower being treated as non-performing by the lending financial institution, these larger and secured loans are at risk of delinquency from slippages in relatively smaller personal loans.”
The first default is mostly observed in unsecured advances. Among borrowers at risk of default (i.e., advances in the SMA category), the risk of delinquency is trending high among borrowers who, in addition to a personal loan or credit card outstanding, have availed other retail loans. Nearly 11% of borrowers originating a personal loan under ₹50,000 had an overdue personal loan, and over 60% of them had availed more than three loans during 2024–25 so far. Moreover, nearly three-fifths of customers who availed personal loans in Q2:2024-25 had more than three live loans at the time of origination.
Unsecured personal loans dominated borrowings by borrowers with less than ₹5 lakh income, while higher-income borrowers availed more secured loans, including housing loans.
