The stress observed previously in unsecured loans and credit cards has “reduced”, stated Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday, June 6, during the Monetary Policy Committee (MPC) meeting. Nonetheless, he warned that microfinance institutions (MFIs) still experience significant pressure.
In addition to this caution, the RBI governor emphasized that the Indian economy is showing positive trends in both inflation and growth.
His remarks regarding unsecured loans follow months of rising concerns about increasing household debt and delinquencies. Rating agencies have identified this sector as a potential threat to financial stability, particularly for banks and non-banking financial institutions (NBFCs).
Statistics from March 2025 indicated that delinquencies in unsecured business loans increased to 3.80%, up from 3.25% in December 2024. Delinquencies for secured business loans also experienced a minor rise to 1.79%.
In the personal loan sector, India Ratings & Research noted that delinquencies could remain high, forecasted to range between 3.5% and 3.6% in the first half of FY26.
Despite these ongoing challenges, securitization volumes are anticipated to persist, particularly via the pass-through certificate (PTC) route.
Spending on credit cards, another key indicator, fell to a seven-month low of ₹1.67 lakh crore in February 2025, down from ₹1.84 lakh crore in January. Both point-of-sale and e-commerce transactions observed sequential declines.
Within the MFI sector, loans continue to face stress despite some signs of improved repayment behavior.
Data from CRIF High Mark showed that the delinquency rate (loans overdue by 90+ days) in the microfinance sector was 1.3% in Q4 FY24, slightly down from 1.4% in Q3, yet remains a significant concern for lenders.
Additionally, the industry experienced a 12% increase in disbursements in Q4 FY24, with a growing share of high-ticket loans (₹50,000–₹1 lakh), reflecting a shift in borrower profiles.
However, this may introduce new risks if repayment capacity does not keep up.
Furthermore, while collection efficiency has improved to 98%, regional disparities and borrower over-indebtedness continue to put pressure on the MFI sector, especially among NBFC-MFIs with high rural exposure.
In this context, the RBI announced a 50 basis point reduction in the repo rate, lowering it to 5.5%, alongside a 100 basis point reduction in the Cash Reserve Ratio (CRR).
This CRR cut is expected to release up to ₹2.5 lakh crore in liquidity, which may ease funding conditions for banks and potentially support credit growth.
The central bank also adjusted the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates by 50 basis points in accordance with the repo rate change. The policy stance shifted from ‘accommodative’ to ‘neutral’.
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