Credit appraisal of an MSME loan with ratio and cash-flow analysis

Malwa Polypack Pvt Ltd makes printed plastic pouches and laminates for snack and spice brands in Madhya Pradesh and Gujarat. Turnover grew from ₹14.8 crore to ₹21.6 crore in three years. The promoters, two brothers, want a ₹2.5 crore term loan to buy a second printing line and a ₹1.5 crore cash credit limit for working capital. Their current bank has declined to increase limits, which is why they have come to Narmada Small Finance Bank.

The branch credit manager, Ms Shalini Jain, has to send a credit appraisal note to the regional credit committee in two weeks. She has the borrower’s audited financials for three years, GST return turnover, twelve months of bank statements and a project report from the promoters’ consultant. She suspects the project report is optimistic: it assumes 85% capacity use in year one and debtors falling from 74 days to 45.

You will build a synthetic but consistent borrower file in task 1 from these facts, then appraise it the way an Indian bank credit officer would: - ratio analysis over three years, including current ratio, TOL/TNW, interest cover and DSCR; - an assessment of working capital need and drawing power; - a five-year projection of cash flows and DSCR, with your own assumptions next to the promoters’; - a risk review covering industry, customer concentration, promoters, security and compliance; - a credit note with a recommendation, limits, conditions and covenants.

The committee approves loans when average DSCR is comfortably above the bank’s floor, security cover is adequate and the risks are understood. They reject notes that just copy the borrower’s project report.