Finance · 8 min read
Debt Service Coverage Ratio (DSCR) explained for Indian MSME loans: formula, calculation with example, ideal value banks expect (≥1.25), and 4 practical ways to fix a low DSCR.
What is the minimum DSCR accepted by Indian banks?
Most public sector banks (SBI, PNB, BOB, Canara) require DSCR ≥ 1.25 for service and trading businesses, and ≥ 1.50 for manufacturing units. RBI doesn't mandate a single number, but IBA guidelines and internal bank policies set these floors. A DSCR below 1.0 means the business cannot repay from operations — virtually guaranteed rejection.
How to calculate DSCR in a project report?
DSCR = Net Operating Income ÷ Total Annual Debt Service. NOI is your projected revenue minus all operating costs except interest, depreciation, and tax. Debt service is the annual loan repayment (principal + interest). Example: NOI = ₹3.60 lakh, Annual EMI = ₹2.40 lakh → DSCR = 1.50. Banks calculate this for each of the 5 projection years.
Why does my DSCR come out below 1.25?
Common causes: (1) loan amount too high relative to projected profits, (2) repayment period too short creating large EMIs, (3) revenue projections too conservative or cost projections too high, (4) working capital component included in term loan (inflating EMI). Fix: extend tenure, reduce loan amount, add promoter contribution, or revise projections with a stronger market rationale.
Is DSCR the same as debt-to-income ratio?
No. DSCR measures whether business income covers loan repayment. Debt-to-income ratio (used in personal finance) compares total debt to gross income. For MSME loans in India, DSCR is the standard metric used in project reports and CMA data.
Project Report for Bank Loan — Format
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CMA Data Report
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DPR Report (Detailed Project Report)
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How to Make Project Report
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MUDRA Loan Project Report
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PMEGP Project Report
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