Buying a home, upgrading to a new car or taking an education loan may not be as straightforward in the coming years, especially if your CIBIL score is below 730. A major change in banking rules is on the horizon, and it could make lenders far more careful about whom they lend money to.
The Reserve Bank of India’s new Expected Credit Loss (ECL) framework, which will come into effect from April 1, 2027, is expected to reshape the way banks assess borrowers. While the move is aimed at making the banking system stronger and safer, it could also mean stricter scrutiny for millions of loan applicants.
At present, banks generally start making provisions for bad loans only after a borrower has failed to make repayments for a prolonged period and the account turns into a non-performing asset (NPA).
The new ECL system changes that approach completely. Instead of waiting for a default to happen, banks will have to estimate potential losses in advance and keep money aside accordingly. The idea is to identify risks early and ensure that lenders are better prepared for future losses.
Banking experts believe this proactive approach will improve the overall health of the financial system. However, it will also increase the amount of money banks need to set aside, putting pressure on their profitability.
The new rules are likely to make credit scores more important than ever before.
When banks have to make higher provisions for risky loans, they naturally become more selective. Borrowers with weaker credit histories may therefore find themselves under greater scrutiny. Some may be offered loans at higher interest rates, while others could be asked to provide additional security or guarantees.
This is particularly significant because a large proportion of Indian borrowers fall into this category. Industry estimates suggest that nearly 62 per cent of loan applicants have a CIBIL score below 730.
For many of them, getting approval for a home loan, car loan or education loan could become more challenging once the new framework comes into force.
As lenders look to manage risks more carefully, customers with higher credit scores are expected to become more attractive.
Borrowers with a CIBIL score of 730 and above are generally seen as financially disciplined and less likely to default. Experts believe such customers could enjoy better loan terms, faster approvals and lower borrowing costs.
Industry estimates indicate that around seven crore Indians currently have credit scores above this level, making them a key target group for banks in the future.
Under the ECL framework, lenders will not rely solely on whether a borrower is paying EMIs on time.
They will take a broader view of a person’s financial situation. Factors such as repayment history, changes in credit score, income stability, existing debt levels, employment conditions and the value of the asset against the loan amount will all be examined.
This deeper assessment is designed to help banks identify warning signs much earlier than they do today.
The new framework will require banks to set aside higher amounts when borrowers miss repayments. For instance, on a home loan of Rs 25 lakh, the provisioning requirement could rise from around Rs 10,000 to Rs 25,000 if an EMI remains unpaid for 30 days, with the amount increasing further as the default period lengthens.
This shift could influence everything from loan approvals to interest rates and eligibility conditions.
Financial planners say the best way to prepare for these changes is to focus on maintaining a healthy credit profile.
Paying EMIs on time, clearing credit card bills regularly and avoiding excessive debt can all help improve a credit score. Even small improvements in repayment behaviour can make a difference over time.
As the 2027 deadline approaches, a strong CIBIL score could become one of the most valuable financial assets for borrowers. It may not only improve the chances of getting a loan approved but could also help secure lower interest rates and better borrowing terms.
The RBI’s new framework is designed to make the banking sector more resilient. But for ordinary borrowers, it also sends a clear message: maintaining good credit habits today could make borrowing much easier tomorrow.