Three-lenders cap makes micro borrowers fall in line

The number of bottom-of-the-pyramid borrowers taking loans from four or more lenders has come down 44% from a year ago, reflecting the impact of prudential lending in the most vulnerable economic strata where mounting delinquencies dented the performance of Indian lenders in the last five quarters.

The number of such borrowers queuing up at more than three financiers fell to 3.1 million at the end of the June from 5.7 million a year ago, showed the CRIF High Mark data, illustrating the efficacy of a three-lender exposure cap that took effect from the start of this fiscal. The latest count represents about 4% of an active borrower base of 79.8 million.

The 3.1 million customers, who could be considered 'higher risk' have ₹35,712 crore of outstanding borrowing between them at the end of June. That amounts to about a tenth of the sector's outstanding loan portfolio of ₹3.6 lakh crore.

The portfolio relating to borrowers transacting with more than three microfinance lenders remains very vulnerable to slippages, especially after the guardrail 2.0 regime limiting fresh loans from more lenders to such borrowers, Crisil Ratings' director Malvika Bhotika said a fortnight ago.


"As per our estimates, almost a fourth of the portfolio with more than three lenders is in the PAR (portfolio at risk) 31-180 days bucket as on June 30, 2025," she said.

The portfolio exposure of borrowers with high lender associations declined from 19.2% of the book over the past 12 months, CRIF data showed.

While this transition has lowered the exposure of MFIs to over-leveraged borrowers, slippages from the legacy portfolio will keep asset quality under pressure, experts said.

The issue of borrower overleveraging has been at the heart of the high delinquencies over the past one years leading to severe asset quality stress and loss in income for lenders. It's ironic that lending to the micro borrower segment, which was once known for their robust repayment behaviour, is now being considered risky.

"The industry is prioritising risk management and portfolio stabilisation over aggressive growth, reflected in subdued lending activity and a stronger focus on liquidity," CRIF said. This moderation aligns with the implementation of guardrails by self-regulatory organisation Microfinance Institutions Network to mitigate overleveraging risks. This led to a 17% year-on-year contraction in the size of the microfinance market to ₹3.59 lakh crore.

The active loan accounts fell to 132 million from 159.3 million, with the live customer base declining to 80 million from 86.6 million between June 2024 and June 2025, data compiled by CRIF showed.

The sector's portfolio at risk for more than 90 days past due remained elevated at 15.54% of the total on- and off-balance sheet book. This means the gross non-performing assets without excluding the technically written-off loans stood at ₹55,820 crore at the end of June. Loans are classified as NPA when borrowers fail to pay interest or principal for more than 90 days.