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Strong shift seen towards formal lending channels

RISING RURAL INCOMES-II

by Blitz India Media
August 21, 2025
in Perspective
Strong shift seen towards formal lending channels
Blitz Bureau

NEW DELHI: DRIVEN by continued policy efforts to promote financial inclusion, rural households increasingly rely on formal institutional sources for credit. A record 52.6 per cent of households reported sourcing loans exclusively from formal financial institutions – banks, cooperatives, NBFCs, MFIs, etc. Another 26.9 pc borrowed from both formal and informal sources. This represents a strong shift away from unregulated lenders, ensuring better borrower protection and reduced cost of credit.

The mean interest rate on informal loans declined to 17.53 pc, a 30-basispoint drop from the previous round. Despite being outside the formal system, 30 pc of rural households paid no interest on such loans – primarily due to borrowing from friends and relatives, indicating community-based financial support.

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Over 76 per cent of households assessed that rural infrastructure improved over the past year. This reflects consistent progress in areas such as roads, electricity supply, drinking water, health services, and educational institutions.

The CPI-rural inflation fell from 3.25 pc in March to 2.92 pc in April and further to 2.59 pc in May. Food inflation also dropped to 1.36 pc in May. In the July survey, rural households reported a lower inflation perception, averaging (mean value) 4.28 pc. A majority of households (78.4 pc) perceived inflation to be at or below 5 pc, while nextquarter expectations fell to a record low of mean 4.29 pc. One-year-ahead expectations remained stable at mean 5.51 per cent. (Concluded) The share of food in total monthly consumption expenditure remained stable at a median value of 50 per cent, even with softening rural food inflation. This indicates that rising incomes are being used to diversify spending, without increasing pressure on food budgets.

Growth and optimism

The July 2025 RECSS survey highlights strong growth and optimism in rural India. Incomes and consumption are rising, savings have improved, and more households are accessing formal credit. Sentiments about future income and employment are at their highest levels yet. Government support remains steady, infrastructure is improving, and inflation perceptions are at a record low. Overall, the rural economy is on a confident and upward path.

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