DSCR Analysis in Karauli

What Is DSCR Analysis?

DSCR analysis tests whether a project or business generates enough cash to meet its debt obligations. The debt service coverage ratio (DSCR) compares the cash available for debt service in a year with the debt service due in that year, which is the interest and the principal instalment. A DSCR above 1 means cash available exceeds debt service, and the higher the ratio, the greater the cushion.

Banks commonly calculate DSCR for term loans as the sum of profit after tax, depreciation and interest on the term loan, divided by interest on the term loan plus the principal repayment due in the year. Some lenders use variations, for example based on EBITDA or other measures of cash flow, so the definition used by the lender should be followed.

A DSCR analysis typically shows the year-wise ratio, the average DSCR over the loan period and the minimum DSCR in any year, and tests how these change with delays, lower sales, higher costs or a different repayment schedule. It is often used to size the loan, choose the moratorium and repayment pattern and decide whether the project can bear the proposed debt.

Who Needs DSCR Analysis?

• Promoters applying for term loans and project finance
• Businesses planning to borrow for expansion
• Companies testing how much debt a project can carry
• Borrowers preparing a DPR or bank proposal
• Borrowers discussing repayment schedules or moratorium with a lender
• Investors and lenders reviewing the projections of a project
• Promoters whose proposal was questioned on repayment capacity

When Is DSCR Analysis Required?

It is not a legal requirement, but banks routinely examine it. DSCR analysis is useful when:

• A term loan or project loan is being applied for
• The loan amount and tenure are to be decided
• The first years of operation are expected to be slow
• A moratorium or step-up repayment is proposed
• The lender has raised queries on repayment capacity
• Projections have been revised and coverage must be rechecked
• A restructuring or rescheduling of repayment is discussed

What Our DSCR Analysis Includes

The analysis is built on your projections and loan terms and typically covers:

• Understanding the loan structure and the lender's DSCR definition
• Reviewing the underlying projected profit, depreciation and interest
• Repayment schedule: tenure, moratorium, instalments and interest
• Year-wise DSCR computation
• Average and minimum DSCR
• Cash coverage and the effect of the moratorium
• Sensitivity to lower sales, higher cost, delay in start and interest rate change
• Comparison of alternative repayment structures
• Suggested adjustments to loan size, tenure or repayment pattern
• Reconciliation with the cash flow statement
• Summary note for submission to the lender

Legal and Practical Considerations

Lender's definition. DSCR is not defined by a single statute. Each lender has its own formula, benchmark and treatment of items such as unsecured loans from promoters or non-cash charges. The analysis should follow the lender's definition.

Benchmarks. Many lenders look for a comfortable DSCR, with benchmarks such as 1.5 often cited and minimum acceptable levels often lower, but the actual requirement depends on the bank, sector and risk. A benchmark is not a promise of sanction.

Projection quality. DSCR is only as reliable as the projected profit and cash flow behind it. Aggressive assumptions produce attractive ratios that lenders discount.

Tax and accounting. Projected profit after tax depends on the tax law applicable for the years projected. Since the Income-tax Act, 2025 took effect from 1 April 2026, tax assumptions should be confirmed with a tax professional.

Covenants. Loan agreements often require the borrower to maintain a minimum DSCR and report it periodically. Breach can have consequences under the loan terms.

Stress. A single base-case ratio is not enough. A good analysis shows how coverage holds in a downturn.

Common Mistakes in DSCR Analysis

• Using a formula different from the lender's
• Counting items that the lender excludes from cash flow
• Ignoring the first-year working capital build-up
• Not allowing for the end of the moratorium
• Averaging DSCR and ignoring weak years
• No sensitivity test
• Repayment structure not aligned with cash generation
• Projected profits inconsistent with the rest of the project report

Professional Fees, Government Fees and Timeline

DSCR analysis carries no government fee. Bank fees are separate. Professional fees depend on the number of years and loan facilities, complexity of the repayment structure and number of scenarios. An analysis is typically ready in 2 to 5 working days after projections and loan terms are available.

DSCR Analysis vs Debt Servicing Analysis vs Cash Flow Projection

DSCR analysis focuses on the coverage ratio for a loan or project. Debt servicing analysis looks more broadly at the repayment capacity of a borrower across all obligations. Cash flow projection details the timing of cash flows. Related services include Debt Servicing Analysis, Cash Flow Projection and Bankable DPR.

Need Professional Assistance With DSCR Analysis?

Knowing your coverage before you apply lets you structure the loan to suit your cash flow. The Legal Bank can help you prepare the analysis. We prepare analysis and documentation; the decision to sanction a loan rests with the lender concerned. Share your requirement to discuss the next steps.