Microfinance in India faces challenges as major players struggle with rising non-performing assets

Microfinance in India is experiencing significant challenges despite growth in loan volumes. Major players like Bandhan Bank and IndusInd Bank are struggling with rising non-performing assets (NPAs) and profitability issues, leading to a sharp decline in stock prices. Regulatory changes made in 2022 aimed to improve the sector but have not yielded the expected results. Increased borrower over-indebtedness and rising portfolio at risk have emerged, particularly in states like Bihar and Uttar Pradesh, where microfinance penetration is high. The Reserve Bank of India has raised risk weights on microfinance loans, indicating concerns about sector overheating. While the outlook is bleak, some well-capitalized microfinance institutions may navigate the current stress better than others, presenting potential investment opportunities.