If you have ever applied for a personal loan, home loan, or even a credit card, you might have heard the bank executive mention FOIR. Many applicants ignore this term, assuming it is just another banking formula. However, in reality, FOIR plays a crucial role in loan approval. In fact, even with a high salary and good CIBIL score, your loan can be rejected if FOIR does not fit the bank’s internal policy.
So, what exactly is FOIR? More importantly, how do banks calculate internal FOIR, and why does it sometimes differ from what customers expect? In this detailed guide, we will break down Internal Bank FOIR Calculation in simple language, along with real-life examples, practical tips, and insider insights.
What is FOIR?
FOIR stands for Fixed Obligation to Income Ratio. Simply put, it shows how much of your monthly income is already committed to fixed payments such as EMIs and liabilities.
Formula:
FOIR = (Total Monthly Obligations ÷ Net Monthly Income) × 100
In other words, FOIR tells the bank whether you can comfortably handle a new EMI or not. Therefore, banks use FOIR as a risk-control tool.
Why FOIR is Important for Banks
Banks are not just lending money; they are managing risk. Hence, FOIR helps them understand:
- Whether the borrower can repay the loan regularly
- The probability of default
- The customer’s financial discipline
Moreover, FOIR ensures that borrowers are not overburdened with EMIs. As a result, banks protect both themselves and the customer.
What is Internal Bank FOIR?
Now, this is where many applicants get confused.
Internal Bank FOIR is the FOIR calculated using the bank’s internal rules, not just the basic formula. Although the standard FOIR formula is the same, the inputs used by banks may differ.
For example:
- Some banks consider gross income, while others consider net income
- Certain allowances may be excluded
- Existing obligations may be loaded or adjusted
Therefore, your FOIR on paper may look acceptable, but internally, the bank may calculate it differently.
Internal FOIR Limits Followed by Banks
Although FOIR limits vary from bank to bank, below is a general guideline:
- Personal Loan: 40% – 55%
- Home Loan: 50% – 65%
- Loan Against Property (LAP): 50% – 60%
- Credit Card: 30% – 45%
However, these limits depend on multiple factors such as income type, employer profile, and credit score.
Factors That Affect Internal FOIR Calculation
Let us now understand the key elements banks consider while calculating internal FOIR.
1. Net Monthly Income
Banks usually prefer net income (after tax and deductions) instead of gross salary. Therefore, PF, professional tax, and other deductions reduce your usable income.
2. Existing EMIs
All running EMIs are included, such as:
- Personal loan EMI
- Home loan EMI
- Car loan EMI
- Education loan EMI
Moreover, some banks also add a notional EMI for credit cards.
3. Credit Card Obligations
Even if you pay your credit card bills on time, banks may still consider:
- 5% of total credit limit, or
- 100% of minimum due amount
As a result, your FOIR increases.
4. Income Type
Salaried individuals with stable jobs enjoy higher FOIR limits. On the other hand, self-employed applicants usually get stricter FOIR norms.
5. Employer & Industry Profile
Applicants working in reputed companies, government jobs, or stable industries often receive FOIR relaxation. Conversely, high-risk sectors face tighter scrutiny.
Internal Bank FOIR Calculation – Step-by-Step Example
Let us understand this with a simple example.
Applicant Details
- Net Monthly Income: ₹50,000
- Existing Personal Loan EMI: ₹8,000
- Credit Card Limit: ₹1,00,000
- Bank considers 5% of credit limit as obligation = ₹5,000
Step 1: Calculate Total Monthly Obligations
- Personal Loan EMI = ₹8,000
- Credit Card Obligation = ₹5,000
Total Obligations = ₹13,000
Step 2: Apply FOIR Formula
FOIR = (13,000 ÷ 50,000) × 100 = 26%
In this case, the FOIR is well within limits. Therefore, the applicant is eligible for a new loan.
Example Where Internal FOIR Causes Rejection
Now, let us consider another scenario.
- Net Monthly Income: ₹35,000
- Existing EMIs: ₹12,000
- Credit Card Minimum Due: ₹3,000
Total Obligations = ₹15,000
FOIR = (15,000 ÷ 35,000) × 100 = 42.8%
If the bank’s internal FOIR limit is 40%, the loan will be rejected, even though the difference seems small.
Why Banks Add Extra Load in Internal FOIR
Sometimes, banks intentionally increase obligations. This is known as FOIR loading. They do this to:
- Account for future interest rate hikes
- Cover income volatility
- Reduce default risk
Hence, internal FOIR is often stricter than customer-calculated FOIR.
How to Reduce Your FOIR Before Applying for a Loan
If your FOIR is high, do not panic. Instead, follow these practical steps:
- Close small personal loans
- Reduce credit card limits
- Prepay existing EMIs
- Add a co-applicant with income
- Choose longer loan tenure
As a result, your eligibility improves significantly.
FOIR vs LTV – Key Difference
Many people confuse FOIR with LTV.
- FOIR measures income vs obligations
- LTV (Loan to Value) measures loan amount vs property value
Both are important, but FOIR directly affects EMI affordability.
Common Myths About FOIR
Myth 1: High Salary Guarantees Loan Approval
Not true. Even with a high salary, high EMIs can push FOIR beyond limits.
Myth 2: Credit Cards Don’t Affect FOIR
Wrong. Credit cards significantly impact internal FOIR.
Myth 3: All Banks Use Same FOIR Rules
In reality, each bank has its own internal credit policy.
Final Thoughts
Internal Bank FOIR Calculation is one of the most critical yet misunderstood aspects of loan approval. While customers often focus only on income and CIBIL score, banks look deeper into repayment capacity.
Therefore, before applying for any loan, always calculate your FOIR realistically, keeping internal bank policies in mind. If needed, restructure your liabilities first. This approach not only improves approval chances but also ensures long-term financial stability.
If you want personalized guidance on FOIR-based loan eligibility, you can consult a trusted loan advisor to avoid rejection and save time.
Disclaimer: FOIR norms vary by bank and may change based on internal credit policy.