New Delhi: The Ministry of Finance has clarified that banks cannot turn down loan applications from first-time borrowers solely because they lack a credit history or have a low CIBIL score.
Speaking in the Lok Sabha during the ongoing Monsoon Session, Minister of State for Finance Pankaj Chaudhary confirmed that the Reserve Bank of India (RBI) has not mandated any minimum CIBIL score for granting loans.
RBI guidelines on first-time borrowers
Chaudhary explained that the RBI, through its Master Directions issued on 6 January 2025, has clearly advised credit institutions not to reject loan applications from individuals applying for the first time merely on the grounds of having no credit history.
He stressed that while the Credit Information Report (CIR) prepared by credit bureaus can serve as one of the inputs in evaluating a borrower, it cannot be the sole deciding factor. Banks and non-banking financial companies (NBFCs) are required to take decisions based on a combination of factors, including board-approved lending policies and regulatory guidelines.
No minimum score prescribed
The minister reiterated that the RBI has not prescribed a specific minimum CIBIL score for loan approvals. In a deregulated lending environment, each institution has the flexibility to decide on applications in line with its internal policies and commercial considerations.
This means that first-time borrowers — who may not yet have a credit score — should still be considered eligible for loans, subject to the bank’s broader due diligence process.
Due diligence remains mandatory
Even as the ministry has clarified that no minimum score is required, banks are expected to perform rigorous checks before granting credit. These checks include:
- Reviewing repayment history (if any)
- Checking for loans that have been settled, restructured, or written off
- Analysing delayed or defaulted payments
- Conducting background verification of applicants
The ministry emphasised that such due diligence is critical to protect both lenders and the financial ecosystem.
What is a CIBIL score?
A CIBIL score is a three-digit number, ranging from 300 to 900, that indicates an individual’s creditworthiness. Issued by the Credit Information Bureau (India) Limited (CIBIL), it is widely used by banks when assessing loan applications.
A higher score generally suggests lower risk, which can improve chances of loan approval and secure better interest rates. However, the latest clarification ensures that those without an existing score — particularly new borrowers — are not excluded from accessing credit.
Credit report charges and free access
Chaudhary also noted that Credit Information Companies (CICs) can charge a maximum of ₹100 for providing individuals with their credit report. Additionally, as per an RBI circular dated 1 September 2016, every CIC must provide one free full credit report, including the credit score, once a year in electronic format to all individuals with credit history.
This facility aims to encourage citizens to monitor their credit health and take corrective measures when necessary.
Implications for first-time borrowers
The clarification is likely to come as a relief to young professionals, entrepreneurs, and students seeking credit for the first time. It widens access to the banking system and ensures financial inclusion, while also promoting responsible lending practices.
For borrowers, it means that even without a credit record, opportunities exist to secure loans — provided they meet other eligibility criteria set by the lender.
Conclusion
The Finance Ministry’s statement reinforces India’s commitment to financial inclusion by ensuring that lack of a credit history does not prevent first-time applicants from accessing loans. However, borrowers must still undergo due diligence and provide supporting documentation, while banks will continue to rely on their policies and regulatory guidelines in taking decisions.