Centre: Banks can't reject first-time borrowers for zero CIBIL score
What's the story
The Ministry of Finance has clarified that a minimum CIBIL score is not mandatory for first-time borrowers to get bank loans. Minister of State Pankaj Chaudhary made this announcement in the Lok Sabha during the monsoon session last week. He reiterated the Reserve Bank of India's (RBI) position that banks cannot reject loan applications solely based on low or zero credit scores for first-time applicants.
Guidelines
RBI hasn't set a minimum credit score requirement
Chaudhary said, "As part of best practices for credit institutions, Reserve Bank vide referred Master Direction has advised CIs that first-time borrowers' loan applications should not be rejected just because they have no credit history." He added that the RBI has not set a minimum credit score requirement for loan applications.
Discretion
In a deregulated credit environment, lenders make decisions based on...
Chaudhary also explained that in a deregulated credit environment, lenders make decisions based on their commercial considerations and board-approved policies. He said, "The information contained in the Credit Information Report would be one of the inputs, amongst various other inputs/factors, that lenders would consider before granting any credit facility to a prospective borrower."
Score significance
What is CIBIL score?
A CIBIL score is a three-digit number between 300 and 900 that indicates an individual's creditworthiness. It is issued by the Credit Information Bureau (India) Limited (CIBIL) and is typically used to assess eligibility for loans such as personal, gold, home, etc. Despite the clarification on CIBIL scores not being mandatory for first-time borrowers, the finance ministry has advised banks to conduct thorough background checks on applicants before granting loans.
Fee regulations
CICs can charge up to ₹100 for providing credit info
Chaudhary also spoke about the fees charged by Credit Information Companies (CICs) for providing credit reports. He said that under RBI regulations, CICs can charge up to ₹100 for providing an individual with their credit information. Any amount above this is not permissible. He added that the RBI has advised every CIC to provide one free full credit report, including a credit score, once a year to individuals whose credit history is available with them.