New Delhi [India], February 26 : India's microfinance sector is approaching an "inflection point," said JM Financial Institutional Securities, citing a revival in disbursement growth and early signs of asset quality stabilisation, even as overall portfolios continue to consolidate.
In its latest thematic report on India NBFCs, the brokerage noted that year-on-year (YoY) disbursement growth turned positive in 3QFY26 for the first time after five consecutive quarters of decline.
Disbursements rose 9.2 per cent quarter-on-quarter (QoQ) and 5.2 per cent YoY, supported by higher average ticket sizes (ATS) and a rebound in loan volumes.
The report highlighted that the recovery in disbursements was primarily led by NBFC-MFIs, which recorded 10 per cent QoQ and 27 per cent YoY growth by value. Banks also posted a sequential uptick of 13 per cent QoQ, though YoY growth remained negative. Small Finance Banks (SFBs) reported moderate growth.
JM Financial observed a structural shift towards higher-ticket loans, with segments above INR 50,000 gaining market share, while sub-INR 50,000 buckets continued to contract. ATS increased 2 per cent QoQ and nearly 16 per cent YoY during the quarter.
Despite the improvement in disbursements, the industry's gross loan portfolio (GLP) declined 7.1 per cent QoQ and 18 per cent YoY in 3QFY26, reflecting ongoing borrower consolidation and lender-led de-risking. Banks led the retrenchment, reporting a sharp 21 per cent sequential decline in portfolio outstanding. In contrast, NBFC-MFIs exhibited relative stability, with only a marginal QoQ decline.
On asset quality, the brokerage stated that early delinquency indicators showed significant improvement. PAR 1-30 declined to around 1 per cent, the lowest level since 4QFY24. NBFC-MFIs outperformed peers across delinquency buckets, while banks continued to report elevated stress, particularly in late-stage delinquencies and write-offs.
JM Financial cautioned that sustainability remains key, pointing to elevated write-offs in lower-ticket segments and the need to closely monitor borrower leverage. Exposure to borrowers with more than three lenders declined sequentially but remained above comfort levels.
Looking ahead, the brokerage expects sectoral growth over FY26-28E to be driven by higher ticket sizes, selective customer additions, and incremental expansion of non-MFI portfolios. It projects a 21 per cent AUM CAGR and a sharp earnings recovery for its coverage universe.