| Overview: Rising NPAs in India are making banks more cautious in lending, especially for personal loans. Stricter credit checks and reduced risk appetite are affecting approvals, particularly for individuals with unstable income or low CIBIL scores, making borrowing more challenging. |
The Hidden Roadblock to Your Personal Loan Approval
India’s banking sector is witnessing a concerning rise in Non-Performing Assets (NPAs). As per the RBI’s Financial Stability Report (June 2024), gross NPAs in Indian commercial banks were recorded at 2.8%, with projections of marginal increase due to stressed retail and MSME loans. This scenario is making banks cautious.
They are now adopting stricter screening mechanisms, reducing risk appetite, and raising credit score thresholds—especially in unsecured loan categories like personal loans. If you’ve ever been denied a personal loan or offered less favourable terms despite meeting income criteria, the NPA crisis may be part of the reason.
Understanding NPAs: What Are They and Why They Matter?
Before diving into how NPAs impact personal loans, it’s essential to grasp what NPAs actually are:
What is an NPA?
A Non-Performing Asset (NPA) is a loan or advance where the borrower fails to make interest or principal payments for 90 days or more.
Why NPAs Are a Concern
- Lowers bank profitability
- Reduces credit availability
- Triggers tighter risk management policies
- Influences lending rates and loan terms
NPA Classifications
| NPA Type | Duration of Default | Status |
| Sub-standard | < 12 months | Risk of loss still manageable |
| Doubtful Asset | > 12 months | High probability of loss |
| Loss Asset | Unrecoverable | 100% loss expected |
How NPAs Influence Personal Loan Approvals
Due to high NPA levels, banks are:
- Preferring secured over unsecured loans
- Increasing emphasis on CIBIL scores
- Reducing loan disbursement quotas for personal loans
- Raising interest rates for high-risk borrowers
Impact on Borrowers:
As NPAs rise, lenders tighten their screening, directly influencing how and to whom loans are granted.
- More difficult to get low CIBIL score personal loan
- Delays in application approvals
- Need for higher income proofs or co-applicants
- Limited customisation in loan tenures or EMIs
| Important to Know: Even a small delay in EMI payment can drastically lower your credit score and affect future loan chances. |
Low CIBIL Score and NPA Crisis: A Double Whammy
When combined, a poor credit score and the NPA surge make loan approvals even more challenging.
Why Credit Score Matters More Than Ever
The average threshold for personal loan approval is now 700–750. If you have a low CIBIL score, especially below 650, your chances of approval are significantly reduced.
Consequences for Low Credit Score Borrowers:
Your CIBIL score doesn’t just influence approval—it also affects the terms you’re offered by lenders.
| CIBIL Score Range | Loan Approval Likelihood | Common Terms Offered |
| 750–900 | High | Lower interest, flexible EMI |
| 650–749 | Moderate | Moderate interest, limited EMI options |
| Below 650 | Low | High interest, minimal flexibility |
Alt Text: CIBIL score.
With banks focusing more on creditworthiness due to rising NPAs, getting a low CIBIL score personal loan is becoming increasingly difficult.
| Mistakes to Avoid: Avoid applying for multiple loans simultaneously. It triggers hard inquiries and lowers your CIBIL score. |
Alternative Lenders & Fintech Solutions
While traditional banks have become more cautious, fintech companies and NBFCs are filling the gap for borrowers with low credit scores.
Advantages of Fintech Personal Loan Providers:
- Minimal paperwork
- Instant disbursal
- Personalised plans
- Loans up to ₹9 lakhs (e.g., Airtel Finance Flexi Credit)
Explore instant personal loan options with Airtel Finance now.
How to Increase Your Approval Chances?
If you’re affected by the NPA-led tightening of loan norms, here are practical ways to improve your approval odds:
1. Improve Your Credit Score
- Pay EMIs on time
- Limit credit card usage
- Monitor your credit report regularly
2. Choose the Right Lender
- Compare interest rates
- Opt for digital-first lenders
- Look for flexible EMI options
3. Maintain Income Stability
- Submit consistent salary slips or IT returns
- Show additional income sources like freelance work or rent
| What You Must Know: Banks now prefer salaried individuals with a stable income over self-employed applicants due to repayment reliability. |
How Does the NPA Problem Affect Loan Terms?
The rise in NPAs has led banks to revise key loan terms, especially for high-risk borrowers.
Loan Parameter Changes in High-NPA Environment:
| Parameter | Before NPA Spike | After NPA Spike |
| Interest Rates | 10–12% | 13–17% for high-risk |
| Processing Time | 2–3 days | 5–7 days |
| Loan Rejection Rate | 10–15% | 20–30% for low CIBIL |
| Flexibility in Tenure | Very Flexible | Limited for risky profiles |
Borrowers with low CIBIL scores and personal loan needs now face shorter tenures and stricter terms.
Navigating Personal Loans in a Cautious Lending Era
The rising tide of NPAs in India’s banking sector is reshaping how personal loans are disbursed. As lenders become more risk-averse, individual borrowers must adapt by improving their credit health, reducing defaults, and choosing lenders who offer digital, flexible, and transparent processes.
While traditional banks may hesitate, fintech platforms present promising alternatives. The bottom line—stay financially disciplined and informed to navigate this changing credit landscape. Apply for personalised loans easily with Airtel Finance today!
FAQs
- How do NPAs affect personal loan approvals?
High NPAs make banks stricter, reducing loan approvals and increasing credit score requirements. - Can I get a personal loan with a low CIBIL score?
Yes, but approval chances are lower, and interest rates are usually higher. - Why are banks cautious in lending now?
Due to rising NPAs, banks prefer safer borrowers with strong repayment histories. - What CIBIL score is ideal for personal loans?
A CIBIL score above 750 improves approval chances and offers better terms. - How can I improve my loan approval chances?
Maintain timely payments, reduce debt, and monitor your credit report regularly.
