Small finance banks limit borrower loans amid rising default risks

Small finance banks (SFBs) are increasingly limiting loan amounts to reduce default risks as delinquencies rise among borrowers. These banks, which serve underserved and financially weaker segments, have been facing challenges due to the high default rate, especially in the wake of the pandemic. The decision to restrict loan amounts is part of a broader risk management strategy to protect their financial health. SFBs are now focusing more on creditworthy borrowers and have implemented stricter lending criteria to mitigate rising non-performing assets (NPAs), signaling a cautious approach to lending.