RBI Urges Microlenders to Monitor Stress, Cites Sector Challenges & Southern State Slowdown

• RBI directs microfinance institutions (MFIs) to actively monitor stress build-up in their loan portfolios, as per its FY25 banking report.
• The report highlights lower disbursements in southern states and challenges faced by lenders due to borrower over-leverage.
• Industry bodies MFIN and Sa-Dhan implemented guardrails, including limiting loans per borrower, to ensure calibrated growth.
• Despite regulatory changes in 2022 aimed at sustainable growth, the microfinance sector experienced stress, with credit contraction for most lenders by March-end 2025.
• SHG credit access increased, but JLG loans declined significantly by 58% in 2024-25, while SHG savings and outstanding loans grew.

Why It Matters: RBI warns microlenders to watch for stress, noting sector challenges and regional disbursement dips.