NBFCs curb fresh loans in rural markets as weak monsoon raises repayment risks

Mumbai: India's top non-bank lenders, including Shriram Finance, Mahindra & Mahindra Financial Services and Bajaj Finance, are curbing fresh lending in drought-hit regions, trimming loan originations, strengthening collection efforts and closely monitoring borrowers for early signs of repayment stress.

India's southwest monsoon rainfall was 13% below normal in 2026, the weakest since 2015, with the southern peninsula reporting a 24% deficit. Karnataka, a key state for such lenders, reported a sharper 32% shortfall.

Lower farm output can depress rural incomes and consumption, slow economic activity and impair some borrowers' ability to repay loans on time. The impact of weak rainfall is now beginning to influence credit decisions beyond crop finance.

Shriram Finance is moderating lending in parts of Karnataka, central India and eastern Maharashtra after receiving ground-level reports of a slowdown in economic activity. The lender could also tighten loan-to-value ratios and intensify collection efforts if conditions deteriorate, MD and CEO Parag Sharma told ET.

"We are being watchful and are not increasing the lending book in such locations," Sharma said. "If the situation requires further action, we could revise loan-to-value norms or focus more closely on collections."

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The company has lowered its loan-growth guidance to 15-17% from 18%, citing macroeconomic and seasonal factors, particularly the weak monsoon, executive vice-chairman Umesh Revankar said in an analyst call.

M&M Finance has also reduced funding in stressed locations during the second quarter while strengthening its collection infrastructure in vulnerable markets. The company is monitoring three states and 282 districts classified as drought-prone, MD and CEO Raul Rebello said during an analyst call.

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"Proactively, again in Q2, we have reduced some of the funding in some of these locations which are stressed," Rebello said. "You would be a little more conservative, keeping in mind the stress in those locations."

The lender has strengthened its in-house collection operations and engaged external collection infrastructure where required, he said. M&M Finance has also doubled its liquidity buffer in rupee terms from a year earlier amid risks arising from the West Asia crisis and the possibility of an El Nino-linked drought.

Bajaj Finance is tracking conditions across all 720 districts and reducing business in areas where drought has been declared. The measures include cutting microfinance originations in certain districts and scaling back parts of its business-to-business lending portfolio.

Vice-chairman and MD Rajeev Jain said the lender had been monitoring monsoon developments for the past three to four months and was acting wherever portfolio indicators began to reflect underlying pressure.

Maharashtra appeared to be the most affected state at present, although conditions vary across regions, Jain said.

Bajaj Finance has already cut business in some areas and is taking further steps elsewhere to manage its exposure. The lender, however, expects its overall scale to allow it to continue growing comfortably.

“In drought-affected districts, our priority is to stand by our customers, and we are working closely with them in line with state government directives and regulatory guidance,” Bajaj Finance on Tuesday said.


“we calibrate our approach to local conditions and remain fully committed to these markets as they recover,” it added.