Bankers and analysts now expect MFI stress to normalise from H2FY26 onwards.
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Private sector lenders, especially those with more exposure towards micro loan segments, saw a dent in their profitability in Q4FY25 due to higher delinquencies and subsequent provisions, bankers say. Private sector major Kotak Mahindra Bank (KMB) reported 14 per cent year-on-year (y-o-y) fall in net profit for the quarter ended March at ₹3,552 crore, largely due to higher provisions made for micro loans. The bank’s provisions and contingencies rose over 3X on-year to ₹909 crore in Q4FY25, denting the bottomline.
Ashok Vaswani, MD & CEO, KMB, said the microfinance industry went through over leveraging issue, due to which the lender reduced its exposure to such loans. “The cost of the microfinance industry crisis has had a pretty profound impact on our results for FY25,” he said.
Mid-sized lender RBL Bank reported 80 per cent year-on-year (y-o-y) fall in net profit for the quarter ended March at ₹69 crore, as provisions spiked due to higher bad loans. Fresh slippages stood at ₹1,058 crore in Q4FY25, sharply higher than ₹680 crore in Q4FY24.Of the total slippages in reporting quarter, ₹444 crore of slippages emanated from credit cards portfolio, while ₹439 crore of bad loans were from micro loan segment. As bad loans rose, provisions spiked to ₹785 crore in Q4FY25 from ₹414 crore in corresponding period last year.The bank’s management said the lender has 100 per cent provision on its micro loan segment bad debt.
IDFC First Bank, too, saw its Q4 net profit falling due to micro loan stress and subsequent provisions. “Our sense is that Q4FY25 was the lowest in terms of profitability. The impact of the MFI issue will wear off progressively in FY26 we feel every quarter. In the micro loan book, SMA-0 (special-mention account) book is down materially from ₹275 crore to ₹152 crore. Well need to be careful though about legislations,” IDFC First Bank MD, CEO V Vaidyanathan told businessline in a recent interaction.
The Karnataka government passed a bill on microfinance loans in February 2025 which targeted unregistered money lenders who used coercive loan recovery practices. While the bill was largely seen in the interest of customers, it vitiated the credit culture in the state and lenders saw collection efficiency being hit, bankers say.
According to CRISIL Ratings, the microfinance institutions’ delinquencies in 90+ dpd (days past due) bucket or bad loans are estimated to have more than doubled to 6 per cent as on March 31, 2025, from 2.4 per cent last year. Bankers and analysts now expect MFI stress to normalise from H2FY26 onwards.
Published on May 11, 2025
