What is IIR full form in Banking?

The IIR full form in Banking is Installment to Income ratio. The installment to income ratio is used to determine the customer’s loan eligibility. This IIR represents a part of the customer’s monthly payment on the Home Loan or any other loan taken. Banks typically utilize a ratio ranging from 33.33% to 40%. For example, if IIR is 40% and gross income is Rs. 60,000/- per month, according to the IIR ratio, the customer is eligible for a loan with an installment of not more than Rs. 24,000/- per month.

Significance of IIR in banking:

The IIR assists lenders in determining whether a borrower can afford to take on extra debt. A smaller ratio suggests that the borrower is better equipped to handle extra debt, lowering the lender’s risk. By ensuring that borrowers do not overextend themselves, lenders reduce the possibility of default. This percentage aids in identifying possible borrowers who may struggle with repayment.

Benefits of IIR:

The IIR is an important part of a borrower’s creditworthiness assessment. It provides a comprehensive picture of a borrower’s financial health and ability to manage both current and future debt. Borrowers who monitor their IIR are more likely to make responsible borrowing decisions, such as taking out loans only when absolutely necessary and ensuring that they can comfortably meet their repayment obligations.