The microfinance portfolio outstanding of banks, where they lend directly to borrowers, declined 28.5 per cent year-on-year to Rs 83,080 crore as of June 30, 2026, from Rs 1.16 lakh crore a year earlier, according to the latest MFIN Micrometer report.
The decline was largely due to banks shifting microfinance loans to retail portfolios through reclassification, the report said.
At the same time, banks accounted for 64.8 per cent of the outstanding borrowings of NBFC-MFIs as of June 2026, making them the largest source of funding for the sector.
The dependence on banks was even more pronounced in fresh funding.
NBFC-MFIs witnessed a 91.4 per cent jump in debt funding from banks and received Rs 21,407 crore during the first quarter of 2026-27, the report said, adding that banks contributed 80.4 per cent of the total.
Non-bank entities accounted for 12.1 per cent of fresh funding, followed by external commercial borrowings at 5.3 per cent, it added.
The shift in banks’ direct exposure comes at a time when the overall microfinance industry is seeing a contraction in its borrower base but an increase in loan sizes.
The industry’s total micro-credit portfolio stood at Rs 3.29 lakh crore as of June 30, down 6.9 per cent from a year earlier. The number of active loan accounts declined to 9.9 crore from 12.5 crore during the same period.
The decline in the overall portfolio was partly attributed to the shift of microfinance loans into retail portfolios, with banks accounting for the majority of this shift.
NBFC-MFIs, however, have gained share and remained the largest providers of micro-credit, with an outstanding portfolio of Rs 1.46 lakh crore, accounting for 44.3 per cent of the industry. Their portfolio grew 5.2 per cent year-on-year, while the portfolio of small finance banks declined 6.1 per cent.
NBFC-MFIs reported strong growth in disbursements during the quarter. They disbursed Rs 29,820 crore in the first quarter, up 43.1 per cent from the year-ago period.
At the same time, the number of clients served by NBFC-MFIs declined 11.3 per cent year-on-year to 3.1 crore, while loan accounts fell 10.5 per cent to 3.8 crore.
The average outstanding loan per account rose 27.8 per cent to Rs 37,584 from Rs 29,406 a year earlier, indicating a sharp increase in the average ticket size even as the borrower base contracted.
Portfolio at risk in the 31-180 days bucket for NBFC-MFIs fell to 1.5 per cent as of June 30, 2026, from 5.3 per cent a year earlier.
The improvement in asset quality has coincided with a significant rise in funding availability, with NBFC-MFIs’ fresh debt funding almost doubling during the quarter.
The sector, however, remains highly concentrated. Of the 40 MFIN member NBFC-MFIs covered in the report, 12 large MFIs accounted for 93.8 per cent of industry AUM, 95.7 per cent of loan disbursements and 98.1 per cent of debt funding received during the quarter, the report said.
Geographically, Bihar remained the largest microfinance market with a portfolio of Rs 53,163 crore, followed by Uttar Pradesh at Rs 39,661 crore and Tamil Nadu at Rs 38,718 crore. The top 10 states accounted for 83.3 per cent of the industry’s total portfolio.
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