IDFC First Bank has successfully secured a substantial allocation of ₹514.82 crore from the Credit Guarantee Fund for Micro Units (CGFMU) scheme against claims on its microfinance portfolio. According to reports from The Economic Times, the payout represents approximately 100% of the claim submitted by the bank and pertains to eligible microfinance loans sanctioned up to March 2025. The receipt is expected to result in a full write-back of provisions already made by the bank against these defaults, directly boosting its bottom line.
Since the bank had already set aside provisions for these MFI defaults in earlier quarters, the claim settlement will flow through as a reversal rather than fresh income — providing a one-time earnings tailwind. As reported by The Economic Times, the receipt is expected to result in a full write-back of provisions already made by the bank against these defaults, directly boosting its bottom line. This strategic move significantly improves the bank's financial performance by reversing previously set aside provisions for defaults.
The bank has implemented a strategic move to substantially de-risk its MFI portfolio going forward. According to reports from The Economic Times, approximately 97% of all new microfinance loan originations from January 2024 onwards are now covered under the CGFMU scheme. This coverage substantially limits the bank's credit loss exposure on fresh disbursals in the microfinance segment, providing enhanced protection against future defaults in this portfolio.
The payout comes at a time when the microfinance industry has been grappling with elevated stress, rising delinquencies and overleveraging among borrowers — issues that have weighed on IDFC First Bank's asset quality and earnings in recent quarters. As reported by The Economic Times, microfinance loans under the CGFMU scheme are extended to women entrepreneurs under a Joint Liability Group structure, where a group of borrowers collectively guarantee each other's loans. The scheme, backed by the government, provides credit guarantee cover to lenders against defaults in this segment.
