Finance Ministry Issues Clarification on CIBIL Score for Borrowers

The Ministry of Finance addressed concerns regarding the role of CIBIL scores in bank loan approvals. Speaking in the Lok Sabha during the monsoon session, Minister of State for Finance Pankaj Chaudhary said, "As part of best practices for credit institutions, Reserve Bank vide referred Master Direction dated 6.1.2025 has advised CIs that first-time borrowers' loan applications should not be rejected just because they have no credit history."

What is a CIBIL Score?

A CIBIL score is a three-digit number ranging from 300 to 900 that indicates an individual's creditworthiness based on their repayment record and financial conduct. Banks and financial institutions use it to check a borrower's creditworthiness and the possibility of prompt loan or credit payback.

No Minimum CIBIL Score Required for Loans

The minister further emphasised that the Reserve Bank of India does not need a minimum credit score for loan applications. He added that in a deregulated credit environment, lenders make decisions based on their board-approved policies and regulatory guidelines, and the information contained in the Credit Information Report would be one of the inputs considered alongside other factors before granting a loan.

The Reserve Bank of India has authorised four Credit Information Companies to provide credit reports, which includes TransUnion CIBIL Ltd, Equifax Credit Information Services Pvt Ltd, Experian Credit Information Company of India Pvt Ltd and CRIF High Mark Credit Information Services Pvt Ltd. These companies operate under the Credit Information Companies (Regulation) Act, 2005, and are responsible for compiling and sharing credit information with banks and other financial institutions.

Pankaj stated that RBI expects banks, while conducting credit appraisals, to examine borrowers' credit history including delayed repayments, settled or restructured loans and defaults or write-offs to assess creditworthiness and make informed lending decisions.

The Ministry noted that Credit Information Companies (CICs) can charge up to Rs 100 for providing an individual's credit report, and that RBI mandates one free full credit report in a year in digital format for individuals with a credit history. The Ministry also highlighted that the National Financial Information Registry (NFIR), announced in the Union Budget 2023-24, is intended as a central repository of credit and related information, with no current plans to replace the existing CICs.