By Sharda Associates | CA Firm, Bhopal
Your bank keeps talking about DSCR (Debt Service Coverage Ratio), and you have no idea what it means.
You submitted your loan application. The bank came back with a query. They said your DSCR is below the required threshold and your CMA report needs to be revised before they can proceed.
You do not know what DSCR means. You do not know what threshold the bank is talking about. And you definitely do not know how to fix it.
This situation happens to thousands of business owners across India every month. DSCR is one of the most critical numbers in any CMA report, and yet it is one of the least understood concepts among loan applicants. Getting it wrong means your loan gets rejected or delayed. Getting it right means your application moves forward smoothly through credit appraisal.
At Sharda Associates, a CA firm based in Bhopal, Madhya Pradesh, we have prepared over 45,500 CA-certified CMA reports for businesses across India. Our CA team calculates and verifies DSCR for every report we prepare against your specific bank’s minimum threshold before delivery. We ensure your DSCR is correctly calculated, properly presented, and
Get Your DSCR-Verified CMA Report →
What is the Debt Service Coverage Ratio (DSCR)?
DSCR stands for Debt Service Coverage Ratio. It is a financial ratio that tells the bank one specific thing does your business generate enough cash every year to comfortably repay its loan obligations?
In the simplest possible terms, DSCR is a measure of how many times your business’s annual cash earnings cover its annual loan repayment obligations. A DSCR of 1.00 means your business earns exactly enough to cover repayment with nothing left over. A DSCR of 1.50 means your business earns one and a half times what it needs to repay, giving the bank comfortable confidence that repayment is secure even if business performance dips slightly.
Banks use DSCR because profit alone does not tell the full story. A business can show profit on paper but still struggle to meet loan repayments because of non-cash items like depreciation and amortisation that reduce taxable profit but do not actually consume cash. DSCR cuts through this by focusing on actual cash generation, not just accounting profit.
How DSCR is Calculated in CMA Report
The DSCR formula used in CMA Reports for bank loans in India is straightforward.
DSCR = Net Cash Accruals divided by
(Loan Repayment + Interest for the year)
Where Net Cash Accruals equals Net Profit After Tax plus Depreciation plus any other non-cash charges.
A Real Example
Let us say your business has the following figures for Year 2 of your loan projection.
Net Profit After Tax: Rs.8,00,000
Add Depreciation: Rs.2,00,000
Net Cash Accruals: Rs.10,00,000
Loan Repayment (EMI): Rs.5,00,000
Interest for the year: Rs.3,00,000
Total Debt Service: Rs.8,00,000
DSCR = Rs.10,00,000 divided by Rs.8,00,000
DSCR = 1.25
In this example the DSCR for Year 2 is exactly 1.25 — which is the minimum threshold most banks accept. Your business generates Rs.10 lakh in cash while its loan repayment obligations for the year total Rs.8 lakh. The bank can see clearly that repayment is covered.
Why Depreciation is Added Back
Many people are confused about why depreciation is added back when calculating DSCR. The reason is simple. Depreciation is a non-cash expense — it reduces your accounting profit on paper but no actual money leaves your business because of it. When you calculate cash available for loan repayment you must add depreciation back to net profit because that money is still sitting in your business account.
This is what makes Net Cash Accruals a better measure of repayment capacity than net profit alone.
What is the Minimum DSCR Required by Banks in India
Different banks in India have slightly different minimum DSCR requirements — but the standard benchmark across most scheduled commercial banks is 1.25.
| Bank | Minimum DSCR Requirement |
| SBI | 1.25 and above |
| PNB | 1.25 and above |
| Bank of Baroda | 1.25 and above |
| Union Bank | 1.25 and above |
| Canara Bank | 1.25 and above |
| SIDBI | 1.50 and above for some schemes |
| NBFCs | 1.20 to 1.50 depending on lender |
If your DSCR falls below 1.25 in any single year of the repayment period — most banks will reject or return your loan application for revision. This applies regardless of how strong your DSCR is in all other years. Even one year below the threshold is enough to trigger rejection.
This is why getting the DSCR calculation right — for every repayment year — is so critical in CMA Report preparation.
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DSCR is Calculated for Every Year — Not Just One
This is one of the most common misunderstandings among first-time loan applicants. DSCR is not a single number for your entire loan. It is calculated separately for every year of the loan repayment period — and it must stay above the bank’s minimum for every single year.
If your loan has a 5-year repayment period after the moratorium — your CMA Report must show DSCR above 1.25 for Year 1, Year 2, Year 3, Year 4, and Year 5 of repayment. Failing in even one year is enough for rejection.
This is why the structure of your financial projections matters so much. The revenue growth, expense management, and loan repayment schedule all interact to produce the DSCR for each year. Poorly structured projections — even if they show reasonable overall profitability — can produce a DSCR that dips below 1.25 in one or two years, triggering rejection.
At Sharda Associates our CA team builds your financial projections specifically to ensure DSCR stays comfortably above the minimum for every repayment year — realistic enough to be credible and strong enough to satisfy your bank’s credit committee.
Why DSCR Falls Below 1.25 — Common Reasons
Based on our experience of preparing over 45,500 CMA Reports at Sharda Associates these are the most common reasons DSCR falls below the bank’s minimum threshold.
Overly aggressive loan repayment schedule in the early years when the business is still ramping up and revenue is lower. The loan EMI is too high relative to the projected cash generation in years 1 and 2.
Unrealistically low revenue projections in the early years underestimating how quickly the business will reach operational capacity. Revenue is too conservative to support the DSCR calculation.
High operating costs in the projection particularly fixed costs like rent, salaries, and utilities leaving insufficient net profit after tax to generate adequate DSCR.
Depreciation not added back correctly calculating DSCR on net profit alone instead of on Net Cash Accruals. This is a calculation error that significantly understates the actual DSCR.
Moratorium period not factored in correctly some loan applicants do not account for the moratorium period when building their repayment schedule, causing the early repayment figures to be incorrect.
Interest on the entire loan amount charged from Year 1 when in reality interest only accrues on the disbursed amount during construction or setup phase. Overstating early interest expense reduces DSCR unnecessarily.
How to Improve DSCR in CMA Report
If your CMA Report shows DSCR below the bank’s minimum here are the approaches our CA team uses to structure the report correctly.
Extend the loan repayment tenure a longer repayment period reduces the annual principal repayment amount, which reduces total debt service and improves DSCR in every year.
Correctly account for the moratorium period during the moratorium period no principal repayment is due. If your business can generate sufficient revenue during this period before principal repayment begins, DSCR in the repayment years improves significantly.
Review and correct revenue projections if your revenue assumptions are too conservative in the early years, realistic upward adjustment based on actual market data can improve DSCR without making projections look unrealistic.
Optimise the depreciation calculation ensuring depreciation is correctly calculated on all fixed assets and added back correctly in the DSCR numerator.
Review and rationalise operating cost assumptions if fixed costs are over-estimated in the early years, correcting them based on actual quotes and market rates improves net profit and therefore Net Cash Accruals.
It is important to note that DSCR improvement must always be based on realistic business assumptions not artificial manipulation. Banks compare your projections against industry benchmarks. Projections that look artificially optimised to achieve a minimum DSCR raise red flags during credit appraisal.
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DSCR vs Current Ratio — What is the Difference
Both DSCR and Current Ratio are important financial ratios in a CMA Report — but they measure completely different things.
DSCR measures your business’s ability to repay its long-term loan obligations from its annual cash generation. It is used primarily for term loan appraisal — where the bank needs to know whether your business generates enough surplus cash every year to service the EMI.
Current Ratio measures your business’s short-term liquidity — whether your current assets are sufficient to cover your current liabilities. It is used primarily for working capital loan appraisal. Most banks require a Current Ratio of 1.33 or above for working capital facility approval.
Both ratios appear in Statement 7 of the CMA Report — the Ratio Analysis statement. Both must meet the bank’s minimum requirements. And both must be calculated correctly and consistently with the figures in the other 6 statements.
DSCR in Different Types of Loan Applications
Term Loan Applications
For a term loan DSCR is the primary repayment capacity indicator. The bank uses DSCR to verify that your business will generate enough annual cash surplus to service the EMI for every year of the repayment period. DSCR must stay above 1.25 — and ideally above 1.50 for larger loans — throughout the repayment tenure.
Working Capital Applications
For working capital Cash Credit and Overdraft applications DSCR is still calculated and reported in the Ratio Analysis statement — but it is not the primary metric. For working capital applications the bank focuses more on MPBF, Current Ratio, and the working capital assessment in Statement 4.
CGTMSE Collateral-Free Loans
For CGTMSE loans — where the government provides a credit guarantee instead of collateral — the bank must independently verify that your business is viable before seeking the guarantee. DSCR is scrutinised particularly carefully for CGTMSE applications because the guarantee does not substitute for proper credit assessment. A strong DSCR is essential for CGTMSE approval. We prepare complete documentation for CGTMSE applications, including a detailed project report alongside the CMA report.
PMEGP and Government Scheme Loans
For PMEGP and similar government scheme loans a project report and feasibility report are required alongside the CMA Report. DSCR in the CMA Report must be consistent with the financial projections in the Project Report —any inconsistency between documents raises immediate credibility questions.
How Sharda Associates Gets Your DSCR Right
At Sharda Associates, getting DSCR right is not an afterthought; it is built into how we structure every CMA report from the beginning.
When we receive your documents and understand your loan requirement, our CA team starts by mapping out the loan structure, the disbursement amount, the moratorium period, the repayment tenure, and the interest rate. We then build your financial projections specifically to ensure DSCR stays above your bank’s minimum for every repayment year — not by manipulating numbers but by grounding every revenue and cost assumption in real market data for your specific business and location.
We prepare your CMA report alongside your Project Report ensuring that every figure in both documents is completely consistent. We check DSCR for every repayment year before delivery. And if the bank comes back with DSCR-related queries after submission, we revise your report at no additional charge until the bank is satisfied.
We are based in Bhopal, Madhya Pradesh. When you call us you speak directly to a qualified CA. We understand the specific DSCR requirements of every major bank operating across India, and we prepare every report to meet those exact standards.
CMA Report starting at Rs. 2,999. Delivery in 3 to 5 working days. Urgent delivery in 24 to 48 hours available. All revisions are completely free until the loan is approved.
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Documents Required
- Last 2 to 3 years ITR with computation sheet
- Last 2 to 3 years audited Balance Sheet and Profit and Loss Statement
- Last 12 months GSTR-3B and GSTR-1 returns
- Last 12 months bank account statements
- Existing loan sanction letters and repayment schedules if any
- Loan offer letter or sanction terms from bank if available
- Projected revenue and expense estimates for next 3 to 5 years
- Aadhaar Card and PAN Card of all promoters
- GST Registration and Udyam Registration Certificate
Conclusion
Debt Service Coverage Ratio is not just a number in your CMA Report. It is the single most important ratio that determines whether your loan application passes or fails the bank’s credit appraisal. Getting it right with correct calculation, consistent figures across all 7 statements, and values above 1.25 for every repayment year is the difference between a loan that gets approved and one that keeps coming back with queries.
At Sharda Associates, our CA team verifies DSCR for every repayment year in every CMA Report we prepare ensuring your application moves forward confidently through the bank’s credit appraisal process.
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Frequently Asked Questions
1 What is DSCR in CMA Report?
DSCR stands for Debt Service Coverage Ratio. It is calculated as Net Cash Accruals divided by the total of Loan Repayment and Interest for the same year. It tells the bank whether your business generates enough cash annually to comfortably cover its loan repayment obligations. Most banks require DSCR of at least 1.25 for every repayment year.
2 What is the minimum DSCR for bank loan approval in India?
Most scheduled commercial banks in India require a minimum DSCR of 1.25 for every year of the loan repayment period. SIDBI and some NBFCs require 1.50 and above for certain loan types. A DSCR below the minimum in any single year results in the bank returning your CMA Report for revision.
3 What happens if DSCR is below 1.25?
If your DSCR falls below 1.25 in any repayment year the bank will return your CMA Report with a query asking for revision. Your loan cannot be approved until DSCR is corrected to meet the bank’s minimum threshold.
4 Why is depreciation added in DSCR calculation?
Depreciation is a non-cash expense — it reduces accounting profit but no actual cash leaves the business because of it. DSCR measures actual cash available for repayment — so depreciation is added back to net profit to arrive at Net Cash Accruals, which is the correct numerator for the DSCR formula.
5 Is DSCR calculated for every year of the loan?
Yes. DSCR must be calculated and reported separately for every year of the loan repayment period — and it must stay above the bank’s minimum for each of those years. A single year below the threshold is enough to trigger rejection.
6 Can Sharda Associates fix a CMA Report that was rejected due to low DSCR?
Yes. We review rejected CMA Reports, identify the specific DSCR issues, restructure the financial projections correctly, and prepare a revised report. All revisions are completely free. Get Your Rejected CMA Report Fixed →
7 Do I need a Project Report along with CMA Report?
Yes — for most loans above Rs.10 lakh both are required together. The Project Report contains the business plan and financial projections that feed into the CMA Report. All financial figures must be consistent across both documents.
8 How much does a DSCR-verified CMA Report cost at Sharda Associates?
Our CA-certified CMA Reports — with DSCR verified for every repayment year — start at Rs.2,999. Call or WhatsApp +91 89899 77769 for a free same-day quote.