FOIR: how lenders calculate fixed obligation to income ratio
FOIR (fixed obligation to income ratio) is the share of a borrower's monthly income already committed to fixed obligations, including the EMI of the proposed loan. It is calculated as total monthly fixed obligations divided by net monthly income, expressed as a percentage. Most Indian lenders sanction retail loans within a FOIR of 50-65%, with higher limits allowed for higher income bands.
FOIR is the first number a credit officer looks at after the bureau report, and the number most often argued about between sales and credit. The disagreement is rarely about the formula. It is about what goes into the numerator.
The formula
FOIR = (total monthly fixed obligations + proposed EMI) / net monthly income x 100.
Net monthly income means take-home income after statutory deductions, not gross CTC. Lenders differ on whether variable pay, incentives and rental income are included, and at what haircut - typically 50% to 80% of the average over the last six to twelve months.
What counts as a fixed obligation
This is where two lenders looking at the same borrower reach different conclusions.
| Usually included | Usually excluded | Lender-dependent |
|---|---|---|
| Existing loan EMIs | Household expenses | Credit card outstanding (often 5% of balance) |
| Guaranteed loans being serviced | Insurance premiums in some policies | Rent paid, in a few underwriting models |
| Overdraft interest servicing | One-time expenses | Loans closing within 3-6 months, if proof is given |
Worked example
A salaried applicant in Pune earns Rs 1,20,000 net per month. She services a car loan EMI of Rs 14,000 and a personal loan EMI of Rs 9,000, and has a credit card balance of Rs 80,000 on which the lender counts 5%, or Rs 4,000. Existing obligations total Rs 27,000. She applies for a home loan with a proposed EMI of Rs 38,000.
FOIR = (27,000 + 38,000) / 1,20,000 x 100 = 54.2%. At a 55% policy cap she is inside the line, but only just; at 50% the case needs either a longer tenure to reduce the EMI, a co-applicant to add income, or closure of the personal loan.
Field tip: closing a small, nearly-paid personal loan often moves a borderline case more effectively than adding a co-applicant, because it removes the obligation entirely rather than diluting it.
Typical FOIR bands used in India
Caps are policy choices, not regulation, so they vary by lender, product and income band. The commonly seen pattern:
| Net monthly income | Common FOIR cap | Notes |
|---|---|---|
| Up to Rs 30,000 | 40-50% | Lower cap because residual income matters more at low absolute income |
| Rs 30,000 - Rs 75,000 | 50-55% | The bulk of retail salaried lending |
| Rs 75,000 - Rs 2,00,000 | 55-65% | Higher caps for stable employers and clean bureau |
| Above Rs 2,00,000 | 65-75% | Case-by-case, often with residual income tests instead |
How borrowers improve FOIR
Sales teams can usually restructure a declined case rather than lose it.
- Extend tenure to lower the proposed EMI, accepting higher total interest.
- Close or prepay a small existing obligation and provide the closure letter.
- Add an earning co-applicant so the denominator rises.
- Increase the down payment to reduce the loan amount.
- Document variable income properly - a well-evidenced incentive history can add meaningfully to assessed income.
FOIR inside the origination workflow
The practical problem is not calculating FOIR - it is calculating it early. When the ratio is computed at credit stage, a weak case has already consumed a field visit, a document pickup and a bureau pull. When an eligibility check runs on the officer's phone at sourcing, the same case gets restructured in the customer's living room, and the file that reaches credit is one that can be approved.
Frequently asked questions
- What is FOIR?
- FOIR is the fixed obligation to income ratio - the percentage of a borrower's net monthly income committed to fixed obligations including the proposed loan EMI. Lenders use it alongside the bureau score to decide loan eligibility.
- What is the FOIR formula?
- FOIR = (existing monthly fixed obligations + proposed EMI) divided by net monthly income, multiplied by 100. Net monthly income is take-home pay after statutory deductions, with variable income usually taken at a haircut.
- What is a good FOIR for a home loan?
- Most Indian lenders approve home loans at a FOIR between 50% and 65%. Applicants earning above Rs 2 lakh a month may be considered up to 70-75% because residual income remains comfortable, while lower income bands are usually capped nearer 40-50%.
- Is credit card outstanding included in FOIR?
- Most lenders include a notional obligation of about 5% of the outstanding credit card balance rather than the full amount, on the assumption that the balance is revolving rather than fully repaid each month.
- How can I reduce my FOIR?
- Lengthen the loan tenure to cut the EMI, close a small existing loan and submit the closure proof, add an earning co-applicant, raise the down payment, or document variable income such as incentives so assessed income increases.
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