Government Confirms That a CIBIL Score is Not Essential for Initial Borrowers to Secure Loans
The Reserve Bank of India (RBI) has announced a significant policy change that aims to make loans more accessible for first-time borrowers in India. This clarification was made during the monsoon session of the Lok Sabha by Minister of State for Finance, Pankaj Chaudhary.
Under the new policy, new borrowers seeking education, housing, personal, or business loans can now be assessed on parameters other than just a credit score. The RBI has advised banks and financial institutions in India not to reject loan applications solely due to a lack of credit history. Instead, they can consider income details, employment records, and repayment capacity.
For new borrowers in India, repayment history will begin to build after their first loan, shaping their future borrowing terms. This change is expected to encourage more banks and financial institutions to consider applications from first-time borrowers without a credit score.
The RBI has not prescribed any minimum credit score requirement for loan approval. In India, a credit score ranges from 300 to 900, reflecting repayment behavior. The absence of a credit score does not automatically disqualify loan applicants.
The move to consider alternative data for loan evaluation promotes financial inclusion in India. There are four licensed credit bureaus in the country: TransUnion CIBIL, Equifax, CRIF High Mark, and Experian.
The government has also clarified that first-time borrowers without a CIBIL score should not be outrightly rejected for loan applications. This change in policy may increase the accessibility of loans for individuals who have not previously had the opportunity to establish a credit history.
The policy change is significant for individuals who have been unable to secure loans due to a lack of a credit score. It is a response to concerns about the barriers that a lack of credit history can create for first-time borrowers. The RBI's advice aims to ensure that new borrowers are not unfairly disadvantaged due to a lack of credit history.
This shift in policy is expected to open up opportunities for many Indians who were previously unable to access credit. It is a step towards financial inclusion and could potentially boost economic growth by enabling more individuals to start businesses, invest in education, or purchase homes.
