New Delhi, Nov. 3 -- After two years of credit stress, policy reforms and heavy write-offs, India's microfinance sector is taking tentative steps to recovery.

Bad loan ratios moderated and loan collections improved in the September quarter due to the return of borrower discipline, bankers said. However, profitability remains under pressure and growth still appears far. A key reason: Uneven recovery across states and lenders.

Bandhan Bank, which has a large microfinance book, said it is seeing steady improvement in this microfinance portfolio, particularly across its key eastern markets. Its 30-day-plus delinquency ratio now stands at 3.8%, well below the industry average of 5.1%, while 90-day-plus delinquencies have improved to 2.04% co...