The Reserve Bank of India (RBI) has signalled it will review the annual household income threshold of ₹3 lakh that defines eligibility for microfinance borrowers, Deputy Governor Shirish Chandra Murmu said on 15 November 2026 in Mumbai. Speaking at an event organised by the Microfinance Institutions Network (MFIN), Murmu indicated the central bank would assess whether the existing limit remains appropriate given evolving conditions in the sector — a signal the industry had long been pressing for.

What the RBI Is Reviewing

The ₹3 lakh annual household income threshold currently determines which borrowers qualify under the microfinance regulatory framework. Industry stakeholders have argued the limit is outdated, contending that rising rural incomes and inflation have eroded its relevance. Murmu acknowledged the need for a fresh assessment but stopped well short of committing to a specific upward revision. He stressed that any recalibration must be matched by stronger household income assessment and reporting mechanisms within microfinance institutions (MFIs), cautioning that regulatory relaxations could be misused without adequate safeguards.

RBI Pushes Back on FOIR Dilution

On a separate but related demand from the industry — revising the 50 per cent cap on the household loan repayment-to-income ratio, formally called the fixed obligation-to-income ratio (FOIR) — Murmu was notably firm. He opposed industry proposals to exclude the principal component of certain loans from the FOIR calculation, arguing such exclusions would undermine the safeguard's objective, dilute its sanctity, and lead to an underestimation of household indebtedness.

Murmu described the existing 50 per cent cap as already a 'liberal limit', particularly given the limited financial buffers of low-income households and their heightened vulnerability to economic shocks. The cap, he explained, is designed to ensure a meaningful portion of household income remains available for essential consumption and living costs — not to be treated as a target every borrower should reach.

Data Behind the Caution

Murmu cited a recent study showing the average microfinance borrower spends 18.7 per cent of monthly household income on loan repayments, with nearly two-thirds of income directed towards consumption. He also referenced NABARD's periodic Rural Economic Conditions and Sentiments Surveys, which indicate that consumption and other expenses account for roughly three-fourths of monthly household income, leaving the remainder for loan repayments and savings. Taken together, the data suggests most borrowers are well within current limits — undercutting the case for loosening the FOIR framework.

Rising Loan Ticket Sizes Raise Red Flags

Beyond the threshold debate, Murmu flagged a structural concern: the average ticket size of microfinance loans has been rising steadily, with larger loans recording significant growth while demand for smaller loans appears to be weakening. This trend, he suggested, warrants closer supervisory attention, as it could indicate mission drift — where the sector moves away from its core constituency of small, low-income borrowers towards larger credit exposures that carry different risk profiles.

What Comes Next

No timeline was provided for when the income threshold review would conclude or what form any revision might take. The RBI's cautious framing suggests the regulator is more likely to tighten compliance expectations around the existing framework than to structurally loosen it. For the microfinance sector — which has faced stress in recent quarters due to over-indebtedness concerns — the Deputy Governor's remarks send a clear message: transparency and borrower protection will come before regulatory accommodation.