Credit Appraisal and Lending: Retail, Agriculture, MSME and Corporate
Credit appraisal and lending carries heavy weight in the CBI Credit Officer paper: it tests whether you can convert a borrower's story into a defensible sanction limit, price and security package across retail, agriculture, MSME and corporate exposures.
The appraisal spine
- Five Cs - Character, Capacity, Capital, Collateral, Conditions. Capacity, meaning repayment from cash flow, outranks collateral every time.
- Retail: FOIR cap, LTV by ticket size, credit-bureau score and repayment track, verified income against obligations.
- Agriculture: crop loan sized as Scale of Finance × cultivated area, Kisan Credit Card limits, interest subvention with prompt-repayment incentive; agriculture is an 18% priority-sector sub-target with 10% reserved for small and marginal farmers.
- MSME: Udyam registration. Micro = investment up to ₹2.5 crore and turnover up to ₹10 crore; small = ₹25 crore/₹100 crore; medium = ₹125 crore/₹500 crore. For working capital up to ₹5 crore, the Nayak Committee turnover method gives 20% of projected turnover as the limit, with a 5% margin.
- Corporate: TEV study, DSCR, break-even and sensitivity analysis; Tandon Committee MPBF for larger working-capital needs.
Worked example
An MSME projects turnover of ₹4 crore. Nayak turnover method: working capital gap = 20% × ₹4 crore = ₹80 lakh. Borrower margin of 5% of turnover = ₹20 lakh, so bank finance = ₹60 lakh. If the term-loan EMI is ₹12 lakh and cash accrual (PAT + depreciation + interest) is ₹20 lakh, DSCR = 20/12 = 1.67 - above the usual 1.5 comfort line, so the proposal holds.
Traps
- Using profit instead of cash accrual in DSCR.
- Quoting pre-2025 MSME thresholds.
- Applying the Nayak turnover method to a ₹40 crore corporate, where MPBF and CMA data apply.
- Treating collateral as a substitute for weak cash flow.