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Debt Service Coverage Ratio (DSCR) measures a company available operating cash flow to pay current debt obligations, including principal repayments and interest expenses.
DSCR is the primary financial ratio evaluated by Indian commercial banks, SIDBI, and NBFCs when sanctioning term loans, machinery financing, and CGTMSE collateral-free credit.
A DSCR below 1.0x indicates that the business does not generate enough operating profit to cover loan EMIs, signaling default risk.
EBITDA is Earnings Before Interest, Tax, Depreciation, and Amortization. Total Debt Service is the combined annual sum of loan principal EMIs and interest charges.
1.25x to 1.50x is standard for Indian bank loans. A DSCR above 1.75x qualifies for preferential interest rates.
When applying for bank term loans under CGTMSE or MUDRA schemes, banks prepare a Credit Monitoring Arrangement (CMA) report where average DSCR across 5 projection years must exceed 1.25x.
Most Indian public and private sector banks require a minimum DSCR of 1.25x to 1.30x for approving business term loans.