Mumbai, June 10 -- India's microfinance sector is under increasing strain due to persistently high interest rates, rising levels of borrower over-indebtedness, and aggressive recovery tactics, according to M. Rajeshwar Rao, Deputy Governor of the Reserve Bank of India (RBI).

Speaking at an event in Mumbai on June 5, Rao said, "The sector continues to suffer from a vicious cycle of over-indebtedness, high interest rates and harsh recovery practices." His remarks were published on the RBI's website on Monday.

Banks and financial institutions have raised alarms over growing stress in the microfinance segment, especially since the start of the current financial year.

Contributing factors include declining rural incomes, borrower defaults, ...