Microfinance Institutions (MFIs) have seen a 43% increase in average loan disbursal amounts over three years, rising from $406.47 to $580.67, as per IIFL Capital’s Financial Stability Report. However, concerns remain regarding borrower delinquencies, particularly for those with multiple loans or significant credit exposure. Nearly half of unsecured loan borrowers also carry a live retail loan, frequently a high-value one. During FY23, 11% of borrowers with personal loans exceeding $580.67 had overdue payments, and over 60% had taken out more than three loans. By Q2 FY25, nearly 60% of personal loan recipients had multiple active loans at origination, adding to defaults in the unsecured segment.
The report highlighted stricter lending policies following the enforcement of higher risk weights in November 2023, which has led to tighter credit filters, reduced inquiry volumes, and lower approval rates. This shift has increased the proportion of prime customers while limiting personal loans to lower-income groups. In FY24, banks established 5,400 new branches, the highest since FY16, with 42% located in areas with populations below 50,000. Private banks opened two-thirds of these branches, focusing 45% on underserved rural-urban (SURU) regions.
The loan-to-deposit ratio stabilized at 80%, as loans and deposits recorded an annual growth rate of 11.5%. While retail segments have driven credit expansion over the past three years, large corporations contributed only 5%. Indian banks remain in a strong position, supported by robust loan growth, reduced non-performing assets (NPAs), and improved capital and profitability metrics.
