Microfinance Stress: RBI Deputy Governor on High Rates, Recovery

10 June 20251 min read

Why in the news

An RBI Deputy Governor voiced concern about worsening conditions in microfinance.

Speaker: M. Rajeshwar Rao, Mumbai, 5 June 2025; text posted 10 June.
Vicious cycle: high interest rates, over-indebtedness, coercive recovery, hurting rural and low-income borrowers.
Rising delinquency since FY26 began, tied to high leverage, weaker rural incomes and election disruptions.
Some lenders with low-cost capital still charge excessive margins.

Area	Message
Credit assessment	Prevent over-leverage
Recovery	No coercion
Costs	Check whether high yields reflect inefficiency
Incentives	Flawed systems can cause “perverse outcomes”

1. Which RBI Deputy Governor flagged high interest rates and coercive recovery in microfinance in June 2025?

The concerns were raised by Deputy Governor M. Rajeshwar Rao.

2. Which trio forms the 'vicious cycle' in microfinance described by the RBI Deputy Governor?

He named high rates, over-indebtedness and coercive recovery.

3. In the microfinance speech, stress in loans was reported to have risen since the start of which period?

Banks reported rising delinquency since the beginning of FY26.

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