First-Time Borrower Underwriting: How NBFCs Assess New-to-Credit Applicants in India

Around 40% of India’s working-age adults are new-to-credit. Consequently, over 400 million individuals have no formal borrowing history, CIBIL file, or credit score. This group represents the largest underserved credit segment globally. Therefore, first-time borrower underwriting is not a niche problem for specialised lenders. Instead, it is the central challenge blocking wider credit penetration in India.

Currently, standard NBFCs respond to these applicants in three ways. They either decline them, require a co-applicant, or offer a secured product like a gold loan. However, none of these methods actually solves the credit access issue. This article explains an alternative data framework. This system allows NBFCs to underwrite new-to-credit applicants rigorously by using alternative risk signals.

Understanding the New-to-Credit Population in India

The new-to-credit population is not a homogeneous segment. Rather, it consists of distinct groups:

• Recent formal sector entrants: These are young professionals aged 22-28. They have just started salaried jobs. Thus, they have a stable income but no credit history.
• Informal economy workers formalising: These self-employed individuals are moving into formal credit. They often have over 10 years of business experience but lack formal records.
• Rural and semi-urban residents: These people live in areas with low credit penetration. They might own bank accounts but have never borrowed formally.
• Thin-file borrowers: These individuals hold one or two rarely used credit products. Consequently, their bureau files cannot generate a predictive CIBIL score.

Importantly, each sub-segment offers different alternative data. Therefore, risk frameworks must be tailored instead of applied uniformly.

Alternative Data Sources for New-to-Credit Assessment

Bank Statement Analysis – The Primary Assessment Layer

For a new-to-credit salaried professional, bank statement analysis for NBFCs is the primary income and behaviour verification tool. 12 months of salary account statements provide: salary credit consistency (same employer, consistent amount, regular dates), average savings rate (month-end balance as a percentage of monthly inflow), fixed expense pattern (rent, utility payments, insurance premiums), and any bounce or return events on standing instructions.

A new-to-credit 26-year-old with a consistent Rs 45,000 monthly salary credit, average month-end balance of Rs 8,000, no bounces in 12 months, and regular utility and insurance payments is demonstrating the financial discipline that a bureau history would verify through repayment behaviour through a different signal set, but with comparable predictive value.

Salary and Employment Verification

For salaried, new-to-credit borrowers, employer verification is a substitute for an employer track record in the bureau. Key verification points: Is the employer a recognised company (listed, registered, operating)? What is the employment tenure at the current employer? Is the salary consistent with the role and industry (easily verified against industry salary data)? Is the appointment letter and salary slip format consistent with the claimed employer? Employment stability is the repayment capacity anchor for salaried new-to-credit lending, and personal loan underwriting in India must verify it rigorously when bureau history is absent.

Rent and Utility Payment History

Regular rent payment via bank transfer, consistent utility bill payment, and regular insurance premium debits are all signals of financial discipline that do not require a bureau history to assess. An individual who has been paying Rs 12,000 monthly rent consistently for 24 months via NEFT transfer, paying electricity and gas bills on time, and maintaining an active savings account with a positive balance has demonstrated financial reliability through non-credit payment behaviour.

Educational Credentials and Career Trajectory

For young professional new-to-credit borrowers, educational institution quality, employment institution quality, and career trajectory provide risk signals that bureau history is not available to provide. A 24-year-old IIT graduate in a full-time software engineering role at a listed IT company has a risk profile that can be assessed with reasonable confidence from credit-bureau signals. This is not a precise credit model; it is a supplementary risk assessment that supports the bank statement and employment verification layers.

Telecom and Utility Payment Data

The RBI’s Account Aggregator framework is being extended to include telecom payment data and utility payment records as Financial Information types. When fully operational, this will provide AA-based access to non-credit payment history for thin-file borrowers, one of the most significant near-term improvements to the new-to-credit assessment toolkit.

Product Structuring for New-to-Credit Borrowers

The first loan to a new-to-credit borrower serves two main purposes. It meets the borrower’s immediate need, and it builds a credit history for future use. Lenders should structure these products carefully:

• Small first loan: Offer Rs 25,000-50,000 instead of larger amounts. Consequently, this reduces default losses while building history.
• Short tenure: Use 6-12-month terms instead of longer ones. This strategy minimises risk exposure and generates data faster.
• Secured start: Offer FD-backed cards or gold loans first. As a result, borrowers build history with minimal credit risk.
• Income-linked sizing: Apply strict income limits, such as 1-1.5x monthly income. This approach is much more conservative than standard limits.

Key Takeaways

• First-time borrower underwriting in India requires an alternative data framework—bank statement analysis, employment verification, utility payment history, and educational and career signals —that substitutes for bureau history without compromising credit quality.
• The new-to-credit population is not homogeneous: recent formal-sector entrants, cases of informal-economy formalisation, and rural residents each require adapted assessment approaches.
• Bank statement analysis is the primary assessment tool for new-to-credit salaried borrowers -12 months of consistent salary credits and disciplined spending patterns are the bureau-history equivalent for this segment.
• Product structuring (small initial amount, short tenure, income-linked sizing) manages credit risk while generating the bureau history that enables broader credit access in subsequent applications.

Frequently Asked Questions