How to Improve DSCR in CMA Report — Complete Guide 2026
By Sharda Associates | CA Firm, Bhopal
You submitted your CMA Report with your loan application. You waited weeks. And then the bank came back with one specific problem your DSCR is below the required minimum and your CMA Report needs to be revised before they can proceed with credit appraisal.
You are frustrated. You do not fully understand what DSCR means. You definitely do not know what to change to make it better. And you are worried that changing numbers in your CMA Report will look like you are manipulating the figures.
This guide answers all of those concerns directly. What DSCR is, why it is below the minimum, what legitimate strategies exist to improve it, and exactly what our CA team does at Sharda Associates to structure your financial projections so DSCR stays comfortably above 1.25 for every repayment year.
At Sharda Associates, A CA firm based in Bhopal, Madhya Pradesh, we have helped over 45,500 businesses across India get their CMA reports right—including hundreds of cases where an initial CMA Report was returned with a low DSCR query and we revised it successfully. Our CA team understands the specific mechanics of DSCR improvement—not as manipulation, but as correct financial structuring.
Get Your DSCR Fixed in CMA Report →
What is DSCR — Quick Recap
DSCR stands for Debt Service Coverage Ratio. It is the single most important financial ratio in any CMA Report for term loan applications.
The formula is straightforward.
DSCR = Net Cash Accruals divided by
(Loan Repayment + Interest for the same year)
Where Net Cash Accruals = Net Profit After Tax + Depreciation
DSCR tells the bank one specific thing — does your business generate enough cash every year to comfortably cover its loan repayment obligations?
A DSCR of 1.25 means your business generates Rs.1.25 in cash for every Rs.1.00 it needs to repay. The Rs.0.25 buffer gives the bank confidence that even if your business performance dips slightly — you can still meet your repayment obligations.
Most banks in India require a minimum DSCR of 1.25 for every single repayment year. Not the average across all years — every individual year must stay above 1.25. A single year below this threshold results in automatic rejection regardless of how strong all other years look.
Why DSCR Falls Below 1.25 — Root Causes
Before improving DSCR you need to understand why it is low in the first place. There are five root causes — and each one requires a different approach to fix.
Root Cause 1 — Depreciation Not Added Back Correctly
This is the single most common calculation error in self-prepared CMA Reports — and it is entirely fixable without changing any business assumption.
Net Cash Accruals is not the same as Net Profit After Tax. Depreciation is a non-cash accounting expense — it reduces your taxable profit on paper but no actual money leaves your bank account because of it. When calculating how much cash your business actually generates for loan repayment — depreciation must be added back to net profit.
Many self-prepared CMA Reports calculate DSCR using Net Profit After Tax alone — without adding depreciation. This significantly understates the actual cash your business generates and makes your DSCR appear much lower than it actually is.
Example:
Net Profit After Tax: Rs.3,00,000
Depreciation: Rs.1,50,000
Correct Net Cash Accruals: Rs.4,50,000
Loan Repayment + Interest: Rs.3,60,000
Correct DSCR: Rs.4,50,000 divided by Rs.3,60,000 = 1.25
Incorrect DSCR (without depreciation):
Rs.3,00,000 divided by Rs.3,60,000 = 0.83
The same business has a DSCR of either 0.83 or 1.25 — depending only on whether depreciation is correctly added back. This is why getting the DSCR formula right is the first thing our CA team checks when reviewing a rejected CMA Report.
Get Your DSCR Correctly Calculated →
Root Cause 2 — Loan Repayment Tenure Too Short
The most direct way DSCR falls below 1.25 is when the annual loan repayment amount is too large relative to the annual cash generation of the business.
If you borrow Rs.20 lakh and structure the repayment over 3 years — your annual principal repayment is approximately Rs.6.67 lakh. If you structure it over 7 years — your annual principal repayment drops to approximately Rs.2.86 lakh.
The difference in total debt service between these two scenarios is enormous — and has a direct and significant impact on DSCR for every repayment year.
Many first-time loan applicants assume that a shorter repayment tenure is better — paying less total interest. While this is true mathematically, a very short tenure produces such a high annual repayment amount that DSCR falls below 1.25 — making the loan unapprovable even though the business is genuinely viable over a longer repayment period.
The solution is to request the appropriate repayment tenure — one that produces comfortable DSCR throughout — rather than arbitrarily choosing the shortest possible tenure.
Root Cause 3 — Moratorium Period Not Accounted For
Most term loans include a moratorium period — typically 6 to 12 months after loan disbursement during which only interest is due and no principal repayment is required. This gives the business time to complete construction, install machinery, start production, and ramp up revenue before principal repayment begins.
Many self-prepared CMA Reports calculate DSCR assuming full principal repayment starts from Month 1 — completely ignoring the moratorium period. This means the early repayment years show enormous total debt service — principal plus interest — when the actual repayment structure during the moratorium is interest only.
Correctly modelling the moratorium in your repayment schedule significantly improves DSCR for the first one or two repayment years — because the loan balance is lower when principal repayment actually begins, and interest payments are also lower by that point.
Root Cause 4 — Revenue Projections Too Conservative in Early Years
Sometimes DSCR is below 1.25 not because of a calculation error — but because the revenue projections are genuinely too conservative in the early repayment years.
A new manufacturing unit does not immediately operate at 100 percent capacity. It ramps up gradually — perhaps 50 to 60 percent in Year 1, 70 to 75 percent in Year 2, and 85 to 90 percent from Year 3 onwards. But the loan repayment obligation is the same throughout.
If your projections assume very low Year 1 revenue and a very high repayment obligation starting in Year 1 — DSCR may be below 1.25 in Year 1 even when the business is genuinely viable from Year 2 onwards.
The solution is not to inflate Year 1 revenue beyond what is realistic. The solution is to correctly model the moratorium period so that principal repayment does not begin until the business has ramped up to a level where DSCR is comfortably above 1.25.
Root Cause 5 — Interest on Working Capital Not Separated Correctly
When a business is applying for both a term loan and a working capital Cash Credit limit — the interest on both facilities appears in the CMA Report. Some CMA Reports incorrectly include working capital interest in the DSCR denominator alongside term loan repayment and term loan interest.
The DSCR calculation is specifically for the term loan. The denominator should include term loan principal repayment and term loan interest only — not working capital interest. Including working capital interest in the denominator understates DSCR by increasing the debt service figure without a corresponding increase in the numerator.
8 Proven Strategies to Improve DSCR in CMA Report
Now that you understand why DSCR is low — here are the eight legitimate, bank-acceptable strategies to improve it. Every one of these is a genuine financial structuring decision — not a manipulation of numbers.
Strategy 1 — Correct the Depreciation Add-Back
If your CMA Report has not correctly added depreciation back to net profit in the DSCR numerator — correct this immediately. This single fix can dramatically improve DSCR without changing any business assumption. This is the first thing our CA team at Sharda Associates checks when reviewing any CMA Report with a low DSCR.
Strategy 2 — Extend the Loan Repayment Tenure
Request a longer repayment tenure — 7 years instead of 5 years, or 10 years instead of 7 years. A longer tenure reduces your annual principal repayment amount — which reduces total annual debt service — which directly improves DSCR for every repayment year.
Banks are generally comfortable with longer tenures for productive assets — machinery, equipment, and civil construction — where the asset life justifies a longer repayment period. Matching the loan tenure to the useful life of the asset being financed is standard banking practice and is entirely legitimate.
Example:
Term Loan: Rs.20 lakh at 11% per annum
5 Year Tenure — Year 1 Debt Service:
Principal: Rs.4,00,000
Interest Year 1: Rs.2,20,000
Total: Rs.6,20,000
7 Year Tenure — Year 1 Debt Service:
Principal: Rs.2,85,714
Interest Year 1: Rs.2,20,000
Total: Rs.5,05,714
DSCR improvement from extending tenure:
If Net Cash Accruals = Rs.6,00,000
5 Year DSCR = Rs.6,00,000 divided by Rs.6,20,000 = 0.97 — Below minimum
7 Year DSCR = Rs.6,00,000 divided by Rs.5,05,714 = 1.19 — Still below
10 Year DSCR = Rs.6,00,000 divided by Rs.4,22,000 = 1.42 — Above minimum
This shows exactly how tenure affects DSCR — and why matching tenure to business cash generation is the most important structural decision in CMA preparation.
Get Your Loan Tenure Correctly Structured →
Strategy 3 — Request a Longer Moratorium Period
If your project takes 6 to 9 months to reach commercial production — request a moratorium period of 12 months instead of 6 months. During the moratorium only interest is due — no principal repayment. This gives your business more time to ramp up revenue before full debt service begins.
A longer moratorium period does not reduce your total loan obligation — you pay the same total principal over the repayment period. But it delays the start of principal repayment to a point when your business is generating more revenue improving DSCR in the critical early repayment years.
Banks are generally willing to approve longer moratorium periods for projects where the implementation timeline genuinely supports it. Your Feasibility Report scheduling feasibility section must show a credible month-by-month implementation timeline that justifies the moratorium period requested.
Strategy 4 — Review and Optimise Revenue Projections
If your revenue projections are genuinely too conservative — not arbitrary inflation, but a realistic upward correction based on actual market data — revising them upward can improve DSCR in the early repayment years.
The key word is realistic. Banks compare your revenue projections against industry benchmark data for your specific business type and location. Projections that appear artificially inflated to achieve a minimum DSCR are identified immediately and raise serious credibility concerns.
The correct approach is to build your revenue projections from the bottom up — your actual production capacity, realistic capacity utilisation assumptions grounded in industry norms, and current actual selling prices in your specific local market. If this bottom-up approach produces higher revenue than your initial projections showed — you have a legitimate basis for the revision.
At Sharda Associates our CA team always builds revenue projections bottom-up from real market data not backward from a target DSCR. This is the only approach that produces both correct DSCR and credible projections that banks trust.
Strategy 5 — Reduce Operating Costs Through Real Market Research
If your operating cost assumptions are overstated — using outdated prices, incorrect labour rates, or inflated overhead estimates — correcting them based on actual current market data improves your net profit, which improves Net Cash Accruals, which improves DSCR.
Common areas where operating costs are incorrectly overstated include raw material costs using old prices when current prices are lower, power costs using higher tariff rates than actually applicable to your industry category, and labour costs using urban salary benchmarks when your project is in a rural or semi-urban location with lower market salary rates.
Again — the correction must be based on real current market data, not on a desire to hit a DSCR target. Our CA team verifies every major cost assumption against current market prices before including them in your CMA Report.
Strategy 6 — Include Revenue From By-Products and Secondary Income
Many businesses have legitimate secondary revenue streams that self-prepared CMA Reports completely miss — reducing the apparent profitability and therefore the DSCR.
A flour mill generates bran and wheat bran as by-products — both have real market value. A dal mill generates husk and broken dal — both are saleable. A cold storage unit may generate income from weighing charges and packaging services alongside core storage revenue. A poultry farm generates income from eggs, spent bird sales, and manure.
Including all legitimate revenue streams — with realistic pricing based on actual current market rates — increases your total revenue and therefore your Net Cash Accruals without overstating your primary product revenue. This is entirely legitimate and banks expect comprehensive revenue modelling.
Get Your Complete Revenue Model Prepared →
Strategy 7 — Correctly Calculate and Apply Depreciation
Depreciation has two effects on DSCR — it reduces taxable profit in the denominator of the tax calculation, and it adds back to net profit in the Net Cash Accruals numerator.
Using a higher depreciation rate than what is legally applicable overstates your depreciation add-back and artificially inflates DSCR — which banks will identify. Using a lower depreciation rate than applicable understates your depreciation add-back and artificially deflates DSCR — which hurts you.
The correct approach is to calculate depreciation at the exact rate applicable under the Income Tax Act or Companies Act — whichever is applicable to your business structure — for each asset category. Our CA team at Sharda Associates applies the correct statutory depreciation rate for every asset in your project — ensuring DSCR reflects the genuine economic reality of your business.
Strategy 8 — Separate Term Loan and Working Capital in DSCR
If your DSCR denominator incorrectly includes working capital interest — remove it. DSCR should only include term loan principal repayment and term loan interest. Working capital interest belongs in your operating expenses in the Operating Statement — not in the DSCR calculation.
This separation is both technically correct and significantly improves your DSCR figure — without changing any underlying business assumption.
What NOT to Do When Improving DSCR
This section is equally important. Improving DSCR by manipulating numbers — rather than by correct financial structuring — destroys your credibility with the bank and can constitute misrepresentation.
Do not inflate projected revenue beyond what your production capacity and market demand can support. Banks verify projections against capacity and industry benchmarks. Inflated revenue is identified immediately.
Do not understate operating costs to make net profit appear higher. Banks compare your cost assumptions against industry norms. Costs that are dramatically below benchmark rates raise immediate questions.
Do not apply a higher depreciation rate than is legally applicable. Banks verify depreciation calculations against statutory rates.
Do not show the same DSCR improving dramatically in every single year in a pattern that looks manufactured rather than based on business growth.
Do not exclude interest or repayment obligations from the DSCR denominator that genuinely belong there.
The strategies listed above — correct formula application, appropriate tenure, moratorium period, realistic market-based revenue, correct cost assumptions, complete revenue streams, correct depreciation, and correct DSCR separation — are all legitimate financial structuring decisions. They improve DSCR by making the CMA Report more accurate — not by making it more optimistic.
DSCR Improvement — Bank-Wise Minimum Requirements
Different banks have slightly different minimum DSCR requirements. Understanding your specific bank's requirement helps you set the right target when structuring your CMA.
Always confirm the exact DSCR requirement for your specific bank and loan type before finalising your CMA Report. Our CA team at Sharda Associates confirms this at the start of every CMA preparation engagement.
Get Your Bank-Specific DSCR Structured →
How Sharda Associates Fixes Low DSCR in Your CMA Report
At Sharda Associates when a client comes to us with a rejected CMA Report due to low DSCR — our CA team follows a structured review process.
We first check whether depreciation has been correctly added back in the DSCR calculation. This single step resolves approximately 30 percent of low DSCR cases without requiring any other changes.
We then review the loan repayment schedule — whether the tenure is appropriate for the loan amount and the business's cash generation profile, and whether the moratorium period correctly aligns with the implementation timeline.
We then verify all revenue projections against real market data — actual production capacity, current local market prices, realistic capacity utilisation benchmarks, and all legitimate secondary revenue streams.
We then verify all operating cost assumptions against current market prices — raw materials, labour, power, rent, and other overheads.
We then reconstruct the DSCR calculation correctly — using the right formula, the right inputs, and the correct separation of term loan and working capital interest.
If all of the above still does not produce DSCR above 1.25 — we work with you to assess whether a longer tenure, a larger moratorium, or a restructured project cost better matches the business's genuine cash generation profile.
We prepare your revised CMA Report alongside your Project Report ensuring complete consistency between all financial figures across all documents before delivery.
All revisions are completely free unlimited until your bank is fully satisfied and your loan is approved. CMA Report starting at Rs.2,999.
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 business bank account statements
Existing loan sanction letter and repayment schedule
Loan offer letter or sanction terms from bank if available
Revised projected revenue and expense estimates
Machinery quotations for depreciation calculation reference
Aadhaar Card and PAN Card of all promoters
Conclusion
A low DSCR in your CMA Report is a fixable problem — not a permanent barrier to your loan approval. In most cases the fix involves correcting the DSCR formula to properly include depreciation, restructuring the loan tenure to match your business's cash generation profile, correctly modelling the moratorium period, and ensuring all legitimate revenue streams are included in your financial projections.
What it does not involve is inflating revenue or deflating costs beyond what real market data supports. The goal is to make your CMA Report accurately reflect your business's genuine financial viability — not to manufacture numbers that look good on paper.
At Sharda Associates our CA team has fixed low DSCR in hundreds of CMA Reports — using the legitimate structuring strategies covered in this guide — and helped the businesses behind those reports get their loans approved.
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Frequently Asked Questions
1. 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 individual repayment year. SIDBI and some NBFCs may require 1.50 for certain loan categories. A DSCR below the minimum in any single year results in the bank returning your CMA Report for revision.
2. What is the correct DSCR formula in CMA Report?
DSCR equals Net Cash Accruals divided by the total of Loan Repayment plus Interest for the same year. Net Cash Accruals equals Net Profit After Tax plus Depreciation. Not adding depreciation back is the most common DSCR calculation error — it significantly understates your actual cash generation.
3. Can DSCR be improved without changing business projections? Yes. If depreciation was not correctly added back — correcting the formula alone dramatically improves DSCR without changing any business assumption. If working capital interest was incorrectly included in the denominator — removing it also improves DSCR without any business change.
4. Is extending loan tenure a legitimate way to improve DSCR?
Yes — completely legitimate. Matching loan tenure to the useful life of the asset being financed and to the business's genuine cash generation profile is standard banking practice. A longer tenure reduces annual principal repayment which reduces total annual debt service which improves DSCR.
5. What happens if I inflate revenue to improve DSCR?
Banks verify revenue projections against production capacity, industry benchmarks, ITR history, and GST returns. Inflated revenue is identified immediately and raises serious credibility concerns about the entire CMA Report. Always improve DSCR through correct structuring — not through inflated assumptions.
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