D.S.C.R stands for Debt Servicing Coverage Ratio and is an important metric in evaluating credit lending by Banks & other lending financial institutions.

DSCR is an indication of the ability of the enterprise/corporate to pay their existing EMI’s as well as future EMI opting for. Calculation of DSCR is as follows

D.S.C.R = (Net profits + Depreciation + Bank Interest Paid)/ E.M.I obligations

 

Ideally, banks would look at a D.S.C.R of 1 and above after factoring the future E.M.I. Anything less than 1 can be flagged off as a potential Risk since borrower E.M.I commitments are more than his earnings.

However few lenders are OK considering the loan approval with D.S.C.R up to 0.5 as well. This usually happens under the following scenarios

  1. Banks are able to judge the E.M.I paying capacity of the customer based on other parameters like Gross Margins, Very healthy banking habits with very high bank balances etc This usually happens in Industries wherein actual turnover & transactions are much higher than what is shown in I.T.R.
  2. Banks are more liberal in lending & have more appetite for Credit Risk. These lenders usually charge a much higher Rate of Interest.

An important point to be noted is that most lenders will factor outstanding in OD/CC accounts as an E.M.I liability while calculating D.S.C.R. For calculation purposes they will consider 1% of outstanding amount in OD/CC account as monthly E.M.I liability.

 

E.g. of D.S.C.R Calculation

Net Profits – Rs 8,00,000/-

Depreciation – Rs 2,00,000/-

Interest Paid in previous financial year- Rs 2,00,000/-

Hence net operating income equals Rs 12,00,000/- per annum

Current Outstanding in OD/CC account – Rs 30,00,000/-

E.M.I – Bank 1- 35,000/-

E.M.I- Bank 2 – Rs 35,000/-

Total E.M.I outflow per month is 35,000+35,000+30,000 which equals Rs 1,00,000/- per month

Hence D.S.C.R = Net Operating Income/ Total E.M.I outflows

In this case D.S.C.R = 12,00,000/ 12,00,000 which equals 1.

 

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D.S.C.R stands for Debt Servicing Coverage Ratio and is an important metric in evaluating credit lending by Banks & other lending financial institutions.

DSCR is an indication of the ability of the enterprise/corporate to pay their existing EMI’s as well as future EMI opting for. Calculation of DSCR is as follows

D.S.C.R = (Net profits + Depreciation + Bank Interest Paid)/ E.M.I obligations

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