Fixed Obligation to Income Ratio (FOIR)
Fixed Obligation to Income Ratio (FOIR): Fixed Obligation to Income Ratio (FOIR) expresses an individual borrower's total fixed monthly obligations — existing EMIs, card dues and the proposed new EMI — as a percentage of net monthly income. Lenders cap FOIR per product in their credit policy and size the loan so that the ratio stays within the cap.
Why Fixed Obligation to Income Ratio (FOIR) matters in credit and collections
- Formula: FOIR = (existing fixed monthly obligations + proposed EMI) ÷ net monthly income × 100. Rent is included by some lenders and excluded by others; the policy should say which.
- Thresholds vary by product and income band: unsecured personal loans typically sit in the 40–55% range, home loans are often allowed higher, and lenders usually permit a higher ceiling for higher-income borrowers.
- Obligations are computed by reconciling bureau-reported loans with EMI debits found in Bank Statement Analysis, so that undisclosed loans and loans closed but not updated at the bureau are both caught.
- FOIR is a capacity measure, not a willingness measure — a borrower well within FOIR can still default — which is why it is read alongside bureau behaviour and verification results in the CAM.
How FOIR is calculated and what thresholds look like
The formula is straightforward: FOIR = (existing fixed monthly obligations + proposed EMI) ÷ net monthly income × 100. The judgement lies in the inputs. Obligations include all live loan EMIs and a notional minimum due on revolving credit card balances; rent is included by some lenders and excluded by others, and the policy must say which. Income is net take-home for salaried applicants, usually from salary credits in the bank statement rather than the offer letter, and an averaged, verified figure for self-employed applicants.
Thresholds vary by product, income band and lender risk appetite rather than by regulation. Unsecured personal loans typically sit in a 40 to 55 percent range; home loans are often permitted higher because the asset is secured and the tenor is long; and most lenders allow a higher ceiling for higher-income borrowers on the reasoning that a larger absolute surplus remains after obligations. A policy FOIR cap is a line, but a good credit manager also looks at the rupee surplus after obligations, which the ratio alone hides.
In practice FOIR is computed by reconciling two sources. The bureau report lists live loans and their EMIs as reported by other lenders; Bank Statement Analysis finds EMI debits actually leaving the account. Loans that appear in only one source — undisclosed, recently closed, or taken from unreported lenders — are exactly the obligations that cause FOIR to be understated at sanction and the borrower to be over-leveraged after it.
Regulatory basis
The Reserve Bank does not prescribe a universal FOIR cap; the ratio and its thresholds sit in each lender's board-approved credit policy. RBI's supervisory expectations on unsecured retail lending, its Digital Lending Guidelines and its prudential guidance all presume that lenders assess repayment capacity before sanction, and FOIR is the standard instrument for doing so for individuals.
Source: Reserve Bank of IndiaHow lenders apply FOIR well
- Compute obligations from bureau and bank statements both, and treat a mismatch as a question for the applicant, not a rounding error.
- Show the rupee surplus after obligations next to the ratio; a 50 percent FOIR on a modest income leaves little margin for a shock.
- Set caps by product and income band in policy and record every FOIR deviation in the CAM with its approver.
- Re-compute FOIR from refreshed Account Aggregator data during the loan, not only at sanction; new obligations are an early-warning signal.
- Read FOIR with bureau behaviour and verification — capacity is necessary for repayment, but it is not willingness.
Fixed Obligation to Income Ratio (FOIR) — frequently asked questions
What is a good FOIR for a personal loan?
Most lenders cap unsecured personal loans somewhere in the 40 to 55 percent range, with a higher ceiling for higher-income applicants. The exact figure is set by each lender's credit policy, not by regulation.
Is rent included in FOIR?
It depends on the lender. Some include rent as a fixed obligation, which is more conservative; others exclude it. The treatment should be stated in the credit policy and applied consistently.
How is FOIR different from DSCR?
FOIR is an individual-borrower measure that compares obligations with income. DSCR is the business-loan equivalent, comparing cash available for debt service with principal and interest due. Lenders use FOIR for salaried and consumer loans and DSCR for business and term loans.