Mumbai, Nov. 26 -- Small borrowers, whose default rates have traditionally been among the lowest in India, are increasingly missing loan repayments as rising unemployment and stagnant-to-declining wages put pressure on finances of small companies as well as households.

One of the categories of borrowers that have been the worst hit are those that have availed small loans under the government's Mudra scheme designed to encourage micro-entrepreneurship. So much so, the central bank Tuesday asked bankers to monitor defaults in Mudra loans closely.

At the Sidbi National Microfinance Congress 2019 on Tuesday, Reserve Bank of India deputy governor M.K. Jain said banks need to focus on repayment capacity of borrowers at the appraisal stage and...