Picture a credit appraiser working through forty files a week. Most get skimmed and set aside within ten minutes — not because the underlying business is bad, but because the numbers don't land inside the bands a sanctioning authority is trained to expect. A bankable DPR isn't a longer document. It's one where every key parameter falls comfortably within its ideal range, without needing to be explained away.
Below are the seven parameters we build and stress-test in every DPR we prepare, along with the ranges we consider "bankable" based on how lending institutions in India typically appraise MSME and project finance proposals. These are general benchmarks — actual thresholds vary by lender, sector, and scheme (CGTMSE, PMEGP, term loan vs. project loan), so treat them as the zone to aim for, not a guaranteed cut-off.
The Seven-Point Bankability Checklist
The ideal range for each, at a glance.
1. DSCR (Average)
2. IRR
3. Payback Period
4. Current Ratio
5. Debt-Equity Ratio
6. Break-Even Point
7. Net Profit Margin
1. DSCR — Can the project pay its own instalments?
The single most-checked number in any term loan appraisal.
Most banks want a minimum of 1.2×–1.5× in every individual year, and an average DSCR of 1.5×–2.0× or higher across the loan tenure. A DSCR that's too smooth — identical to two decimal places every year — reads as worked backward from a target rather than genuinely projected.
2. IRR — Is this a good investment on its own terms?
DSCR tells the bank it will get paid. IRR tells the promoter — and the bank — whether the underlying business is worth building in the first place.
| IRR range | What it signals |
|---|---|
| Below cost of borrowing (~10–11%) | Project barely justifies the debt taken on — weak case |
| 12% – 18% | Reasonable, typical for stable manufacturing/trading units |
| 18% – 25% | Strong, comfortably above cost of capital — ideal bankable zone |
| Above 30% | Attractive, but double-check assumptions for over-optimism |
An IRR meaningfully above the loan's own interest rate tells the appraiser the project isn't just borrowing to survive — it's generating a genuine surplus over its cost of capital, which is what ultimately protects the loan if a bad year hits.
3. Payback Period — Does the cash come back before the loan runs out?
A simple sanity check that catches over-optimistic projects fast.
| Loan tenure | Ideal payback | Comment |
|---|---|---|
| 5 years | ≤ 3.5 – 4 years | Comfortable buffer |
| 7 years | ≤ 5 – 5.5 years | Comfortable buffer |
| 10 years | ≤ 7 – 8 years | Comfortable buffer |
4 & 5. Ratio Analysis — Is the balance sheet getting stronger?
One year's ratios mean little. The trend across the loan tenure is what appraisers actually read.
| Ratio | What it tells the bank | Ideal range |
|---|---|---|
| Current Ratio | Can short-term assets cover short-term bills? | 1.33× – 2.0× |
| Quick Ratio | Same, excluding unsold stock | 0.8× – 1.5× |
| Debt-Equity Ratio | How much is borrowed vs. owner's own money | Below 2.0× – 3.0×, falling over time |
| Interest Service Coverage Ratio | Profit cushion over interest cost alone | Above 2.0×, ideally rising sharply |
| TOL / Adjusted Tangible Net Worth | Total outside liabilities vs. owner's real net worth | Below 3.0×, trending down |
The pattern that matters more than any single figure is that every ratio moves in the favourable direction year after year. A DPR where one ratio quietly worsens while others improve invites the obvious question: why?
6. Break-Even Point — how much cushion before losses start?
A low break-even, and one that keeps falling, is one of the strongest signals of resilience in a DPR.
High risk
Acceptable
Good
Ideal
In plain terms: break-even point is the minimum capacity utilisation needed just to cover fixed costs. A unit with a 30–40% break-even can absorb a genuinely bad quarter and still stay profitable. One sitting above 70% has almost no margin for a slow month, a price dip, or a delayed order.
7. PAT & Cash Flow — does profit turn into actual cash?
Profit on paper and cash in the bank are not the same thing. Lenders check both.
| Signal | What's ideal |
|---|---|
| Net Profit Margin (PAT / Sales) | 8% – 15%+, sector-dependent, trending upward year on year |
| PAT growth vs. Cash Balance growth | Both should climb together, roughly in step |
| EBITDA margin | Should stay broadly stable or improve slightly as scale kicks in |
If PAT grows but the cash balance stalls, it usually means profit is trapped in unpaid debtors or piling stock — a working capital problem the profit & loss statement alone won't show. Appraisers cross-check the cash flow statement precisely to catch this.
Working Capital Limit — Three Ways Banks Size It
A term loan funds the machinery. A separate working capital limit funds the day-to-day cash gap — buying raw material before the finished goods are sold and paid for. Banks use one of three standard methods to decide how much to sanction.
1. Turnover Method (typically for limits up to ₹5 crore)
The simplest method — no balance sheet analysis, just a flat 20% of expected sales. Of this, the bank typically funds 80% (16% of turnover) and the promoter brings in the remaining 4% as margin. Used widely for MSME limits under the simplified assessment norm.
2. MPBF Method — Maximum Permissible Bank Finance (Tandon Committee approach)
A more granular method: the bank looks at the actual working capital gap — stock and debtors, net of what's already funded by trade creditors — and finances 75% of that gap, leaving 25% for the promoter to bring in as margin. Used for larger or more complex limits.
3. Drawing Power (DP) Method — used for ongoing CC/OD monitoring
Unlike the other two, which set the sanctioned limit once, DP is recalculated every month from actual stock and debtor statements the borrower submits. It governs how much of the sanctioned limit can actually be drawn right now — the operative ceiling, not the theoretical one.
The Takeaway
A bankable DPR isn't the one with the most pages or the glossiest machinery photographs. It's the one where every parameter — DSCR, IRR, payback, ratios, break-even, and the PAT-to-cash link — sits inside the range a credit appraiser is trained to look for, without needing to be explained away. Build to these ranges from the start, and the file moves from "under review" to "recommended for sanction" a great deal faster.