Retail Loans: FOIR, LTV and Credit Scoring
Two numbers decide most retail loans. Here is how each is worked, and which one usually binds.
Retail loans are sanctioned on two numbers before anything else: how much of the borrower's income already goes on repayments (FOIR), and how much of the property's value the bank is lending (LTV). The first tests repayment capacity, the second the security. RBI caps LTV for home loans; FOIR is left to each lender.
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The Two Ratios
- FOIR (fixed obligations to income ratio)
- All fixed monthly obligations, including existing EMIs and the proposed EMI, divided by net monthly income. Some lenders count rent or other fixed payments too.
- LTV (loan to value)
- The loan amount divided by the value of the property, expressed as a percentage. The borrower's own margin is 100% minus the LTV.
RBI's LTV Caps on Individual Home Loans
From RBI's Master Circular on Housing Finance (1 April 2025). The risk weight is the capital charge the bank carries for the loan.
Up to ₹30 lakh
Maximum LTV
80%
Risk weight
35%
Up to ₹30 lakh
Maximum LTV
Above 80% and up to 90%
Risk weight
50%
Above ₹30 lakh and up to ₹75 lakh
Maximum LTV
80%
Risk weight
35%
Above ₹75 lakh
Maximum LTV
75%
Risk weight
50%
| Loan amount | Maximum LTV | Risk weight |
|---|---|---|
| Up to ₹30 lakh | 80% | 35% |
| Up to ₹30 lakh | Above 80% and up to 90% | 50% |
| Above ₹30 lakh and up to ₹75 lakh | 80% | 35% |
| Above ₹75 lakh | 75% | 50% |
What Counts as the Property's Value
Banks must not include stamp duty, registration and other documentation charges in the property cost when working out LTV, so the cap is not diluted. The one exception: where the house costs ₹10 lakh or less, these charges may be added to the cost.
LTV Worked: Where the Slabs Bite
₹25 lakh
Highest loan allowed
₹22.5 lakh
LTV
90%
Why
Loan stays within ₹30 lakh, so 90% is allowed
₹35 lakh
Highest loan allowed
₹30 lakh
LTV
85.7%
Why
90% would be ₹31.5 lakh, above ₹30 lakh, where the cap is 80% (₹28 lakh). A ₹30 lakh loan stays in the lower slab at under 90%
₹60 lakh
Highest loan allowed
₹48 lakh
LTV
80%
Why
Loan falls in the ₹30-75 lakh band
₹1.2 crore
Highest loan allowed
₹90 lakh
LTV
75%
Why
Loan above ₹75 lakh
| Property value | Highest loan allowed | LTV | Why |
|---|---|---|---|
| ₹25 lakh | ₹22.5 lakh | 90% | Loan stays within ₹30 lakh, so 90% is allowed |
| ₹35 lakh | ₹30 lakh | 85.7% | 90% would be ₹31.5 lakh, above ₹30 lakh, where the cap is 80% (₹28 lakh). A ₹30 lakh loan stays in the lower slab at under 90% |
| ₹60 lakh | ₹48 lakh | 80% | Loan falls in the ₹30-75 lakh band |
| ₹1.2 crore | ₹90 lakh | 75% | Loan above ₹75 lakh |
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FOIR Worked: The Same ₹60 Lakh Home
Net monthly income ₹1,00,000. Existing car loan EMI ₹15,000. Assume the lender's policy caps FOIR at 50% and the home loan is at 9% for 20 years.
- 1
Room for a new EMI
50% × 1,00,000 = ₹50,000 of total obligations. Less the existing ₹15,000 leaves ₹35,000 for the new EMI.
- 2
Convert EMI to loan amount
At 9% for 240 months, the EMI is about ₹900 per ₹1 lakh borrowed. ₹35,000 ÷ ₹899.73 per lakh = about ₹38.9 lakh.
- 3
Compare with LTV
LTV allows ₹48 lakh on a ₹60 lakh home. That would need an EMI of about ₹43,190, pushing FOIR to 58%.
- 4
Take the lower
The eligible loan is about ₹38.9 lakh. FOIR, not LTV, is the binding limit here, so the borrower must bring about ₹21.1 lakh, not ₹12 lakh.
There Is No RBI FOIR Limit
RBI does not prescribe a maximum FOIR. Each bank sets its own in its retail loan policy, often allowing a higher ratio for higher incomes. The 50% above is an assumption for the example, not a rule. Exam questions give the FOIR to use.
Credit Scoring Basics
Retail lending runs on scoring because volumes are too high for full appraisal of each loan. A credit score from a credit information company summarises the applicant's repayment history: past defaults, how much of their credit limits they use, how long they have had credit, and how many recent loan enquiries they have made.
Banks then feed the bureau score into their own scorecards with income, employment stability, FOIR, LTV and the borrower's age against the loan tenure. The cut-off and the weightages are the bank's choice. A good score speeds up sanction; it does not replace the income and security checks.
How Retail Products Differ
Home loan
Main repayment test
FOIR
Security
Mortgage of the house; LTV capped by RBI
RBI risk weight note
35% or 50% depending on loan size and LTV
Vehicle loan
Main repayment test
FOIR
Security
Hypothecation of the vehicle
RBI risk weight note
Excluded from the 2023 consumer credit increase
Personal loan
Main repayment test
FOIR and score
Security
Usually unsecured
RBI risk weight note
125% since RBI's November 2023 measures
Credit card
Main repayment test
Score and income
Security
Unsecured
RBI risk weight note
150% since November 2023
Gold loan
Main repayment test
Value of the gold
Security
Pledge of gold
RBI risk weight note
Excluded from the 2023 consumer credit increase
| Product | Main repayment test | Security | RBI risk weight note |
|---|---|---|---|
| Home loan | FOIR | Mortgage of the house; LTV capped by RBI | 35% or 50% depending on loan size and LTV |
| Vehicle loan | FOIR | Hypothecation of the vehicle | Excluded from the 2023 consumer credit increase |
| Personal loan | FOIR and score | Usually unsecured | 125% since RBI's November 2023 measures |
| Credit card | Score and income | Unsecured | 150% since November 2023 |
| Gold loan | Value of the gold | Pledge of gold | Excluded from the 2023 consumer credit increase |
FAQs
What is FOIR in home loans?expand_more
Fixed obligations to income ratio: all monthly EMIs, including the proposed home loan EMI, divided by net monthly income. It shows how much of the borrower's income is already committed.
What is the maximum LTV for a home loan in India?expand_more
Under RBI's rules, 90% for loans up to ₹30 lakh, 80% for loans above ₹30 lakh and up to ₹75 lakh, and 75% for loans above ₹75 lakh.
Is stamp duty included in the property value for LTV?expand_more
No. RBI tells banks to leave out stamp duty, registration and documentation charges, except where the house costs ₹10 lakh or less.
What FOIR do banks allow?expand_more
It is set by each bank's policy, not by RBI, and often varies with income. Exam questions state the FOIR to apply.
Why did personal loans become costlier for banks in 2023?expand_more
RBI raised the risk weight on consumer credit, including personal loans, by 25 percentage points to 125% in November 2023, so banks hold more capital against them. Housing, education, vehicle and gold loans were excluded.
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