Screening Micro-Enterprise Loan Files
An office assistant is screening four micro-enterprise loan files against the branch's internal norms. Eligibility: (i) age 21–55 years on the application date; (ii) business vintage of at least 2 years; (iii) monthly net income of at least Rs 18,000; (iv) CIBIL score 700 or above; (v) annual household income not above Rs 6,00,000; (vi) total EMIs (existing plus proposed) within 40% of monthly net income. Exception clause: where (ii) and/or (iv) is not met, the Branch Manager may approve if monthly net income is at least Rs 25,000 and the EMI ratio is 35% or less; where only (iii) falls short by up to 10%, the Branch Manager may approve; a failure of (i) or (v) must go to the Regional Office; a breach of (vi) is never condoned. The files: Ravi - 34, vintage 3 years, income Rs 22,000, CIBIL 712, household Rs 5.4 lakh, existing EMI Rs 4,000, proposed Rs 4,500. Sushma - 27, vintage 18 months, income Rs 26,000, CIBIL 690, household Rs 4.8 lakh, existing EMI Rs 3,000, proposed Rs 6,000. Imran - 58, vintage 6 years, income Rs 31,000, CIBIL 748, household Rs 5.1 lakh, existing EMI Rs 5,000, proposed Rs 5,500. Prakash - 45, vintage 4 years, income Rs 30,000, CIBIL 730, household Rs 6,00,000, existing EMI Rs 8,000, proposed Rs 6,000.
1. Classify all four files as sanction, Branch Manager exception, Regional Office referral, or decline, giving the reason for each.
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Ravi - sanction at branch level. Age 34 passes (i); vintage 3 years passes (ii); CIBIL 712 passes (iv); household Rs 5.4 lakh passes (v). EMI ratio = (4,000 + 4,500) / 22,000 = 8,500 / 22,000 = 38.6%, within 40%. Every criterion is met, so no exception is needed.
Sushma - Branch Manager exception. Vintage 18 months fails (ii) and CIBIL 690 fails (iv), but the clause expressly covers (ii) and/or (iv). Check the two gateway conditions: income Rs 26,000 is at least Rs 25,000, and EMI ratio = (3,000 + 6,000) / 26,000 = 9,000 / 26,000 = 34.6%, which is at or below 35%. Both gateways are satisfied, so the Branch Manager may approve.
Imran - Regional Office. He satisfies (ii), (iii), (iv), (v) and his ratio is (5,000 + 5,500) / 31,000 = 33.9%, comfortably inside 40%. But age 58 fails (i), and the exception clause provides no managerial power for (i) - it must be referred up.
Prakash - decline. Age, vintage, income and CIBIL all pass, and household income of exactly Rs 6,00,000 is 'not above' the ceiling, so (v) passes. But EMI ratio = (8,000 + 6,000) / 30,000 = 14,000 / 30,000 = 46.7%, which breaches (vi), and a breach of (vi) is never condoned. Referral cannot cure it.
2. Prakash's file cannot be approved as structured. Show numerically whether restructuring the loan to bring the proposed EMI down to Rs 3,000 would make him eligible.
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Recompute the ratio. Existing EMI Rs 8,000 + revised proposed EMI Rs 3,000 = Rs 11,000. Ratio = 11,000 / 30,000 = 36.67%.
Test against the 40% cap. 36.67% ≤ 40%, so the (vi) breach disappears. A reduced EMI is normally achieved by lengthening the tenure, so this is a genuine option, not a hypothetical.
Check the rest of the file again, because one fix does not carry the others. Age 45 passes (i); vintage 4 years passes (ii); income Rs 30,000 passes (iii); CIBIL 730 passes (iv); household income Rs 6,00,000 is exactly at, and therefore not above, the ceiling in (v). All remaining criteria hold, so the file becomes eligible at branch level.
Cost to flag. Stretching the tenure raises total interest paid; the note should quantify it before the borrower signs. Also verify the revised EMI is the contracted EMI and not a temporary concession - a teaser instalment that steps up later still breaches (vi) and would make the sanction irregular.
Answer: yes - at a proposed EMI of Rs 3,000 the ratio falls to 36.7% and Prakash becomes eligible, provided the tenure change is documented.
3. A fifth file arrives: Nisha - 41, vintage 5 years, income Rs 17,300, CIBIL 745, household Rs 5.9 lakh, existing EMI Rs 3,000, proposed Rs 3,500. Decide how to route it and show the arithmetic that supports your decision.
Read the worked answer
Test each criterion in order, cheapest first.
- (i) Age 41 - passes.
- (ii) Vintage 5 years - passes.
- (v) Household Rs 5.9 lakh, below Rs 6,00,000 - passes.
- (iv) CIBIL 745 - passes.
(iii) Income shortfall. Required Rs 18,000, actual Rs 17,300. Shortfall = 700. Percentage shortfall = 700 / 18,000 = 3.89%, which is within the 10% tolerance in the exception clause.
(vi) EMI ratio. (3,000 + 3,500) / 17,300 = 6,500 / 17,300 = 37.57%, which is within the 40% cap. So (vi) is not breached.
Routing. The only failure is (iii), and only that criterion, within the 10% tolerance - so the file goes to the Branch Manager for exception approval, not to the Regional Office and not to decline. If her income had been Rs 16,150 (a 10.28% shortfall) or lower, the tolerance would be exhausted and the file would have to be declined under these norms.
Caveat to state in the note. The 10% tolerance is a discretion, not an entitlement. Because her EMI ratio of 37.6% leaves thin headroom on a Rs 17,300 income, the note should recommend a smaller ticket or a longer tenure rather than automatic approval.