Can Banks Deny Loans for Low CIBIL Score? Here’s What Finance Ministry Says

In a recent clarification to Parliament, the Finance Ministry explained that credit scores such as CIBIL are not mandatory for first-time borrowers. While banks use credit history to evaluate repayment capacity, loan decisions must consider multiple factors beyond just a credit score.

Let’s take a look at what the Finance Ministry outlined and how it impacts borrowers

Role of Credit Information Companies (CICs)

The Reserve Bank of India (RBI) regulates four CICs: TransUnion CIBIL, Equifax, Experian, and CRIF High Mark. These companies collect, maintain, and share information on borrowers’ repayment history, including delays, write-offs, or restructuring.

Such data helps lenders make informed decisions on creditworthiness.

CIBIL and other scores are intended to assess repayment capacity, but the RBI has not set a minimum score requirement.

Loan sanctioning depends on the bank’s commercial policies, regulatory norms, and overall borrower profile. Credit reports are therefore one of several inputs, not the final determinant.

First-Time Borrowers and Loan Access

An RBI directive from January 2025 instructs that first-time borrowers’ applications should not be rejected only due to the absence of credit history.

This ensures that new borrowers, such as young professionals or first time homebuyers, are not unfairly excluded from the formal credit system.

Cost and Access to Credit Reports

RBI requires CICs to provide one free credit report, including score, every year to individuals with credit history. Beyond this, a fee may be charged, capped at ₹100 for personal reports. This regulation aims to make credit information affordable and transparent for borrowers.

Consumer Protection and Grievance Redressal

To address concerns of misuse or errors in credit data, RBI has mandated safeguards:

• Borrowers must be notified via SMS or email when their credit report is accessed.
• Alerts must be sent on defaults or overdue payments.
• CICs must have an Internal Ombudsman to review complaints before rejection.
• Borrowers can escalate disputes to the RBI Ombudsman under the Integrated Ombudsman Scheme, 2021.
• CICs must conduct root cause analysis of complaints at least twice a year.

Future Role of NFIR and CIBIL

While the 2024 Budget announced the National Financial Information Registry (NFIR) as a central repository of financial data, the Finance Ministry clarified that there is no plan to replace CIBIL or other CICs. Instead, NFIR is intended to complement existing systems by providing a wider pool of credit and financial information.

Read More: Finance Ministry Likely to Review Public Sector Banks’ Q1 FY26 Performance on Aug 20.

Conclusion

The Finance Ministry’s clarification highlights that while credit scores remain an important tool for assessing repayment ability, they are not mandatory and cannot be the sole factor in lending decisions. For first-time borrowers, banks are expected to consider broader criteria, ensuring access to credit is not unfairly restricted.

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