DSCR Calculator for Term Loans
Enter each year's profit, depreciation, interest and instalment. Get the yearly, average and minimum DSCR in one go.
The debt service coverage ratio (DSCR) answers one question: does the cash a business generates in a year cover the loan payments due that year? Banks compute it year by year over the life of a term loan, then read the average and the weakest year.
Use the calculator below for a single year or a full repayment schedule. The sections after it show the formula, a five-year worked example and how lenders read the result.
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DSCR Calculator
Enter profit after tax, depreciation, interest on the term loan and the principal instalment for each year, in the same unit (for example ₹ lakh). The calculator shows each year's DSCR, the average and the minimum.
- Average DSCR
- 1.81
- Lowest year (year 1)
- 1.63
DSCR = (PAT + depreciation + interest on term loan) ÷ (interest on term loan + principal instalment). The average divides the total of every year's numerator by the total of every year's denominator. Use one unit (₹ or ₹ lakh) throughout.
The Formula
DSCR = (PAT + Depreciation + Interest on term loan) ÷ (Interest on term loan + Principal instalment due in the year)
- PAT
- Profit after tax for the year.
- Depreciation
- Added back because it is a non-cash charge. It reduced profit but no cash left the business.
- Interest on term loan
- Added back in the numerator because it is also paid out of the same cash, and it sits in the denominator as debt service.
- Principal instalment
- The term loan repayment falling due in that year, as per the repayment schedule.
RBI Uses the Same Numerator
RBI's IRAC master circular defines the cash available for debt service (EBID) as PAT + depreciation + interest on debt + lease rentals. If a borrower pays lease rentals, add them back too, and put them in the denominator.
Worked Example: Five Years of a ₹500 Lakh Term Loan
A term loan of ₹500 lakh, repaid in five equal yearly instalments of ₹100 lakh. Interest is 10% on the opening balance each year. All figures in ₹ lakh.
1
PAT
50
Depreciation
90
Interest
50
Cash available
190
Instalment
100
Debt service
150
DSCR
1.27
2
PAT
80
Depreciation
80
Interest
40
Cash available
200
Instalment
100
Debt service
140
DSCR
1.43
3
PAT
100
Depreciation
70
Interest
30
Cash available
200
Instalment
100
Debt service
130
DSCR
1.54
4
PAT
115
Depreciation
60
Interest
20
Cash available
195
Instalment
100
Debt service
120
DSCR
1.63
5
PAT
125
Depreciation
55
Interest
10
Cash available
190
Instalment
100
Debt service
110
DSCR
1.73
Total
PAT
Depreciation
Interest
Cash available
975
Instalment
Debt service
650
DSCR
1.50
| Year | PAT | Depreciation | Interest | Cash available | Instalment | Debt service | DSCR |
|---|---|---|---|---|---|---|---|
| 1 | 50 | 90 | 50 | 190 | 100 | 150 | 1.27 |
| 2 | 80 | 80 | 40 | 200 | 100 | 140 | 1.43 |
| 3 | 100 | 70 | 30 | 200 | 100 | 130 | 1.54 |
| 4 | 115 | 60 | 20 | 195 | 100 | 120 | 1.63 |
| 5 | 125 | 55 | 10 | 190 | 100 | 110 | 1.73 |
| Total | 975 | 650 | 1.50 |
DSCR and ratio problems like these. No signup.
Reading the Example
- 1
Yearly DSCR
Year 1: (50 + 90 + 50) ÷ (50 + 100) = 190 ÷ 150 = 1.27. Repeat for each year.
- 2
Average DSCR
Most appraisal notes divide total cash available by total debt service over the loan period: 975 ÷ 650 = 1.50. Taking the simple mean of the five yearly ratios gives 1.52 instead. State which method you used.
- 3
Minimum DSCR
The weakest year is year 1 at 1.27, when interest is highest and profits have not yet built up. That year decides whether the repayment schedule is realistic.
- 4
What to do with a weak year
If the early years are thin, a banker can extend the moratorium, start with smaller instalments (a ballooning schedule) or ask for more promoter money. Each change shows up directly in the yearly DSCR.
What DSCR Do Lenders Look For?
No RBI rule sets one DSCR every bank must use. Each bank fixes its own benchmark in its Board-approved loan policy, often with separate figures for infrastructure, and the sanctioning authority can allow deviations.
As one published example, Corporation Bank's 2019 Group Credit Policy asked new term loans to show an average DSCR of 1.50:1 (1.25:1 for infrastructure) and a minimum DSCR of 1.10:1 in any year (1.00:1 for infrastructure). On that policy, the example above just meets the average and clears the minimum comfortably.
A DSCR below 1 means the year's cash does not cover the year's debt service, so the shortfall must come from somewhere else: fresh equity, other borrowing or the sale of assets.
DSCR Next to the Other Coverage Ratios
DSCR
Formula
(PAT + Depreciation + Interest) ÷ (Interest + Instalment)
What it tells the banker
Whether yearly cash covers term loan servicing
Interest coverage
Formula
PBDIT ÷ Interest
What it tells the banker
How many times operating profit covers interest alone
Fixed asset coverage
Formula
Net fixed assets charged ÷ Term loan outstanding
What it tells the banker
How far the security covers the loan if cash flows fail
| Ratio | Formula | What it tells the banker |
|---|---|---|
| DSCR | (PAT + Depreciation + Interest) ÷ (Interest + Instalment) | Whether yearly cash covers term loan servicing |
| Interest coverage | PBDIT ÷ Interest | How many times operating profit covers interest alone |
| Fixed asset coverage | Net fixed assets charged ÷ Term loan outstanding | How far the security covers the loan if cash flows fail |
Common Exam Traps
Forgetting to add interest back to the numerator gives a DSCR that is too low. Putting cash credit interest in the denominator mixes working capital into a term loan test. Using the total loan amount instead of the year's instalment in the denominator collapses the ratio. Read what the question calls 'repayment' before you divide.
FAQs
What is the formula for DSCR in bank loans?expand_more
DSCR = (PAT + depreciation + interest on the term loan) ÷ (interest on the term loan + principal instalment due in the year). Above 1 means the year's cash covers the year's debt service.
How is average DSCR calculated?expand_more
Add the cash available for debt service across all repayment years and divide by the total debt service over the same years. Some notes take the simple mean of the yearly ratios instead, which gives a slightly different figure.
What is a good DSCR for a term loan?expand_more
It depends on the bank's loan policy. One published bank policy (Corporation Bank, 2019) asked for an average of 1.50 with no year below 1.10, and lower figures for infrastructure.
Why is depreciation added back in DSCR?expand_more
Depreciation reduces profit on paper but no cash goes out, so the cash available to pay the loan is higher than PAT by that amount.
Is DSCR used for working capital loans?expand_more
No. DSCR tests term loan repayment from yearly cash flows. Working capital limits are assessed with the turnover method, MPBF or a cash budget, and read through the current ratio.
Access exam-specific mock tests directly from your Android device.Next steps
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