Fusion Finance was the worst hit, falling 11% to its day’s low of Rs 181 on the BSE. L&T Finance and Utkarsh Small Finance Bank shares slipped 5% each to their day’s lows of Rs 286 and Rs 14.10, respectively.
The Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026 mandates that lenders obtain prior approval from the state Finance Department before disbursing loans, prevents lending at exorbitantly high rates with total interest capped at 100% of principal, and also caps lender exposure at two MFIs per borrower.
It also requires microfinance companies to register with the state government, even if they are already licensed by the RBI.
The development gains significance as Bihar accounts for around 15% of the total MFI loan book, making it the largest state exposure for the segment.
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Wall Street major Morgan Stanley has noted that while the move could weigh on investor sentiment in the near term, the actual financial impact may remain limited. “Lenders, however, may either maintain or trim their microfinance exposure amid continued earnings and valuation volatility,” the international brokerage added.
“Bihar MFI Bill has introduced a fresh layer of regulatory uncertainty for small finance banks, particularly those with meaningful microfinance exposure in the state. While the immediate impact is more sentiment-driven than balance sheet disruptive, the requirement for prior approval before loan disbursals could slow credit growth and raise compliance costs at the margin. Markets are reacting to the precedent risk. If similar measures are replicated in other states, it may warrant a reassessment of growth assumptions and valuation multiples across the SFB space,” says Sourav Choudhary, MD, Raghunath Capital. Also Read | Silver ETFs tumble 15% in one month, gold ETFs gain 3%. What should investors do?
According to a CNBC-TV18 report, Utkarsh Small Finance Bank has the highest exposure to Bihar at 46%, followed by Fusion Finance at 19%. L&T Finance told CNBC-TV18 that 17% of its MFI book is sourced from Bihar, while Satin Creditcare and Spandana Sphoorty have exposure of 13% each to the state.
The media report also said IIFL cautioned that between 5% and 45% of MFI or MSME exposure in Bihar could face a sharp uptick in delinquencies, drawing parallels with Karnataka. In that state, the 30-plus days Portfolio at Risk (PAR) more than tripled within two quarters of the Karnataka MFI Bill, highlighting borrower vulnerability under tighter regulatory conditions.
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