The crisis in the microfinance sector was the most talked about in banking circles in FY25. With players pushing for growth despite borrowers being overleveraged, bad loans spiralled out of control. In response, the industry adopted stringent underwriting standards, which led to a decline in disbursements. Its portfolio shrank to ₹3.2 lakh crore from the FY24 peak of ₹4.4 lakh crore, led by repayments and write-offs. However, these measures have paid off, and a recovery is underway, as shown in the charts below. Nevertheless, with the ongoing scramble for energy, likely higher fertiliser costs and a below-normal rainfall looming large, the sustainability of this recovery remains to be seen.

Published on May 6, 2026