How Indian Banks Calculate Your Loan Eligibility
The exact mathematical methodology behind banking loan sanctions.
1. The 3-Step Bank Underwriting Process
Step 1: Gross Permissible EMI
Bank multiplies your monthly net take-home salary by their FOIR benchmark (e.g., 50%).
Max EMI = Salary × FOIR%
Step 2: Available Discretionary EMI
Existing EMIs and debt commitments are subtracted from the gross permissible limit.
Net EMI = Max EMI - Existing EMIs
Step 3: Reverse Reducing Principal
The net available EMI is discounted across your desired tenure and rate to solve for principal.
P = Net EMI × [(1+r)^n - 1] / [r(1+r)^n]
2. Standard FOIR Benchmarks by Salary Tier
| Monthly Net Salary | Typical Permissible FOIR | Maximum Total EMI Buffer |
|---|---|---|
| ₹30,000 – ₹50,000 | 40% – 45% | ₹12,000 – ₹22,500 |
| ₹50,000 – ₹1,00,000 | 50% | ₹25,000 – ₹50,000 |
| Above ₹1,00,000 | 55% – 65% | ₹55,000+ |
3. Illustrative Worked Example (Home Loan FOIR Calculation)
The following example shows how a bank evaluates borrowing capacity for an applicant with active debts. This is an illustrative educational scenario.
Applicant Profile
Net Monthly Salary:₹75,000
Bank FOIR Limit:50%
Gross Permissible EMI:₹37,500
Less: Existing Car Loan EMI:-₹12,500
Net EMI for New Loan:₹25,000
Sanction Outcome
Tenure:20 Years (240 mos)
Interest Rate:8.75% p.a.
Max Loan Eligibility:₹28,28,980
Total Interest (20 yrs):₹31,71,020
Total Repayment:₹60,00,000
*Disclaimer: Final loan approval depends on credit score (CIBIL 750+ recommended), property legal verification, and individual bank underwriting policies.