For many years, the CIBIL score has been treated as a decisive factor by most banks and lending institutions while sanctioning loans. From personal loans and credit cards to home loans and vehicle finance, applicants have often been judged first and foremost by their three-digit score. This practice created the impression among the public that unless one had a reasonably high score, often above 700, it was nearly impossible to access formal credit.
Against this backdrop, the clarification issued by the Ministry of Finance in August 2025 in Parliament has drawn considerable attention. The government has clarified that the Reserve Bank of India (RBI) has not made it mandatory for banks to demand a minimum CIBIL score for loan approval, particularly for first-time borrowers who have no credit history at all. This clarification provides a more nuanced picture of how the Indian credit system actually works and the role of the score within it.
The statement was delivered in the Lok Sabha by the Union Minister of State for Finance, Pankaj Chaudhary, during the Monsoon Session. He pointed out that the RBI’s Master Direction dated January 6, 2025, specifically advised that applications of first-time borrowers should not be rejected simply because they do not have a credit history. This means that the absence of a score, or a low score in cases where borrowers are new to credit, cannot automatically disqualify someone from seeking financial support. In a country where millions of people are entering the formal financial system each year, this clarification holds both social and economic importance.
The Minister also underlined that the RBI has never prescribed a fixed minimum score that banks must insist upon. Instead, banks and other credit institutions are allowed to make decisions based on their commercial considerations, internal board-approved policies, and regulatory guidelines. A credit report is treated as one of several inputs that help lenders judge the reliability of an applicant, but it is not the only yardstick. This flexible approach is intended to balance the interests of borrowers, many of whom are new entrants to credit, with the commercial realities of lenders who must safeguard their capital and ensure repayment discipline.
To better understand why this clarification matters, one must first examine what a CIBIL score is and why it has become such a central part of lending decisions in India. The score is a three-digit number, ranging from 300 to 900, issued by TransUnion CIBIL, one of India’s four licensed credit information companies (CICs). The number reflects a borrower’s past repayment behaviour, including the timeliness of payments, outstanding debt, number of loans or credit cards taken, and instances of default or restructuring. In practical terms, a higher score suggests lower risk for the lender, while a lower score signals potential risk. Because of this, banks often rely heavily on the score as a quick screening tool when faced with a large number of applications.
However, the problem arises when new borrowers who have never taken credit before are judged by the same criteria. A young graduate applying for an education loan, a farmer seeking a small loan, or a salaried individual applying for their first credit card may not have any previous borrowing history. As a result, their report either shows no score or a very low starting score. If banks reject such applications outright, it effectively prevents a whole section of society from entering the formal credit system. This exclusion is what the RBI directive and the Finance Ministry’s clarification aim to prevent.
The Minister explained that in a deregulated credit environment, the decision to lend is left to the institution, which considers a variety of factors. These include income proof, employment history, stability of occupation, collateral offered in the case of secured loans, and guarantors. In the absence of a strong credit score, these alternative checks provide a realistic way of judging whether the applicant can meet their repayment obligations. Banks are therefore expected to balance the absence of a score with broader due diligence.
The Finance Ministry has also reiterated that while a CIBIL score is not compulsory for first-time borrowers, due diligence cannot be ignored. Lenders must still conduct checks into past repayment behaviour if available, any defaults, restructured loans, or write-offs recorded in other databases. In other words, the absence of a score is not equal to the absence of scrutiny. Banks are duty-bound to assess risk using multiple sources of information before granting loans. This requirement ensures that while borrowers are not unfairly excluded, lenders are also not exposed to reckless lending practices.
Another aspect clarified in Parliament was the role of other credit information companies besides TransUnion CIBIL. India has four CICs licensed by the RBI: TransUnion CIBIL, Experian India, Equifax India, and CRIF High Mark. All these agencies function under the Credit Information Companies (Regulation) Act of 2005 and are bound by regulations issued in 2006. Their main function is to collect, process, and share data on the credit behaviour of borrowers, and to provide credit scores and reports to their members. Banks and financial institutions subscribe to these services to access updated information. The existence of multiple agencies reduces dependence on a single score and ensures broader coverage of borrower behaviour across institutions.
In response to questions raised about possible misuse of credit scores by banks, the Minister said that the RBI has already issued directions to strengthen customer protection. Credit information companies are required to provide every individual with one free credit report and score each year. They can charge a maximum of ₹100 for additional requests, and no higher fee is permitted. Individuals also receive alerts via SMS or email whenever their credit report is accessed by a bank or when there is a change in repayment status. This system is designed to maintain transparency and allow borrowers to keep track of how their financial information is being used.
The Finance Ministry also clarified that there is no proposal at present to replace CIBIL with a government body. The Budget 2024 announcement of a National Financial Information Registry (NFIR) is meant to serve as a central repository of financial information, not as a replacement for existing CICs. The NFIR is expected to strengthen data-based decision-making by making credit and ancillary information more accessible, but credit information companies will continue to function under RBI regulation.
The clarification about CIBIL’s role has wider implications. Over the past decade, Indian banks had started to heavily emphasise the credit score as a decisive parameter. For many salaried professionals, a score below 700 or 650 often led to rejection, irrespective of their income or repayment capacity. This led to criticism that banks were over-reliant on a single number, ignoring the full context of the applicant’s situation. The government’s statement now sends a message that while scores are important, they are not sacrosanct. Other parameters must also be taken into account, especially for new borrowers who have not yet had the opportunity to build a history.
The CIBIL score continues to play an important role in the wider credit market, as it offers a simple and standardised way to compare risk. For individuals who have borrowed before, maintaining a high score is beneficial, as it leads to faster approvals and better terms, such as lower interest rates or higher credit limits. For banks, it reduces the risk of lending to unreliable borrowers. But the recent clarification ensures that new borrowers are not shut out from the system just because they are new.
This approach also supports financial inclusion, which has been a major policy goal in India. Over the last decade, millions of people have opened bank accounts under the Jan Dhan Yojana, digital payment adoption has surged, and small entrepreneurs are increasingly seeking formal loans instead of relying on informal sources. By ensuring that new borrowers are not penalised for lacking a credit history, the RBI and Finance Ministry are supporting this process of inclusion. It allows more citizens to access affordable credit, build repayment records, and eventually strengthen their scores for future borrowing.
