The microfinance sector is going through a rough patch, with five major companies reporting heavy losses in the third quarter of 2025. The combined loss of these stock market-listed companies stands at ₹1,241 crore.
Just a year ago, in the same quarter of 2024, they had collectively made a profit of ₹844.8 crore.
Even in the second quarter of 2025, the loss was significantly lower at ₹229 crore. But the situation seems to have worsened now.
The main culprit behind this financial strain? A sharp rise in non-performing assets (NPAs) and write-offs. NPAs have skyrocketed to ₹2,357 crore this quarter, compared to just ₹376.1 crore in the same period last year. Essentially, these are loans that borrowers have stopped repaying, forcing companies to mark them as losses.
Non-performing assets (NPAs) refer to loans that have not been repaid for a prolonged period, typically 90 days or more. When borrowers fail to make payments, these loans become a burden for financial institutions, affecting their profitability and stability. To manage this, companies often make provisions or set aside funds to cover potential losses.
Write-offs, on the other hand, occur when a company decides that certain loans are completely unrecoverable. Instead of keeping them on their books as assets, they remove them entirely, accepting them as losses. This helps in clearing balance sheets but also reflects the financial struggles of the lending institutions.
Among the affected firms, Spandana Sphoorty Financial Limited, CreditAccess Grameen Limited, and Fusion Finance are taking the biggest hit. Together, their combined loss is close to ₹2,000 crore. The other two companies on the list are Satin Creditcare and Kerala-based Muthoot Microfin.
The rise in NPAs is staggering. CreditAccess Grameen’s NPAs shot up from 0.97% last year to 3.99% now. Spandana Sphoorty’s bad loans jumped from 1.61% to 4.85%, while Fusion Finance saw an increase from 9.4% to a worrying 12.6%.
This sudden spike in bad loans was mostly seen in the third quarter, according to A M Karthik, senior vice president at credit rating agency ICRA.
Despite the losses, these microfinance firms are not facing a shortage of working capital. Spandana Sphoorty has set aside ₹750 crore for future operations and maintains a capital adequacy ratio (CAR) of 36%.
CreditAccess Grameen, with a CAR of 25.9%, is planning to raise Rs 800 crore through a new rights issue.
While the current crisis is severe, some analysts believe the sector could stabilise in the coming quarters. There may not be major fluctuations in assets this year, and a growth of over 10% is expected in the 2026 financial year.
However, how these companies manage their bad loans will be crucial in determining their long-term survival.