When you submit a loan proposal, it does not go straight to a yes or no. It moves through a structured credit appraisal — a series of checks the bank runs to satisfy itself that the money will come back. Promoters who understand this process present far stronger files, because they answer the credit officer’s questions before they are asked. Here is how banks actually appraise a proposal.
The five appraisals every proposal goes through
A credit officer assesses a borrower across five dimensions. A weakness in any one can stall the file.
1. Management / borrower appraisal. Who is borrowing? The bank examines promoter background, experience, integrity, KYC, group structure and track record. For existing borrowers, banking conduct matters enormously — account operations, cheque returns, and the commercial credit bureau (CIBIL Commercial / CRIF) report. A clean repayment history is worth more than any projection.
2. Technical appraisal. Can the business actually do what it claims? For a project, this covers technology, capacity, location, plant and machinery, and implementation capability. For larger projects a TEV study validates it independently.
3. Commercial / market appraisal. Is there a market? The bank tests demand, competition, pricing, customer concentration and the revenue assumptions behind the projections. Optimistic, unsupported demand numbers are the fastest way to lose credibility.
4. Financial appraisal. The heart of it. The bank reviews audited financials, projected statements, and the key ratios lenders check — DSCR, current ratio, TOL/TNW, interest coverage. It also sizes working capital via MPBF or the turnover method and term debt via DSCR.
5. Security & legal appraisal. Finally, the protection: primary and collateral security, valuation, title search, guarantees, and legal/compliance checks. This is what the bank falls back on if cash flows disappoint.
The 6 C’s behind the checks
Bankers summarise the same logic as the 6 C’s of credit:
| C | What it tests |
|---|---|
| Character | Promoter integrity, intent, track record |
| Capacity | Ability to repay from cash flows |
| Capital | Promoter’s own stake in the business |
| Collateral | Security available as a fallback |
| Conditions | Industry, economy, end-use of funds |
| Cash flow | The actual source of repayment |
What the bank will ask for
A typical appraisal needs:
- Audited financials (usually 3 years) and the latest provisional
- Projected financials and, for projects, a DPR
- GST returns, bank statements and banking conduct
- KYC, constitution documents, and group/associate details
- Security details, valuations and title documents
A loan is not sanctioned on a single number. It is sanctioned when the promoter, the project, the market, the financials and the security all tell the same, defensible story.
Where proposals fall down
Most rejections are avoidable: inconsistent numbers across documents, thin DSCR or current ratio, weak banking conduct, unsupported projections, or incomplete security and title. Each is fixable before the file reaches the credit desk — which is precisely where advisory earns its keep.
Our corporate finance and debt-syndication team prepares the proposal the way a credit committee reads it: the financials reconciled, the ratios defensible, the projections stress-tested, and the right lender — PSU bank, NBFC or AIF — approached for the ask.
FAQ
What is credit appraisal?
Credit appraisal is the process a bank uses to assess a loan proposal before sanctioning it. It evaluates the borrower across five areas — management, technical feasibility, market, financials and security — to confirm the loan can be repaid and is adequately protected.
What documents do banks need to appraise a loan?
Typically three years of audited financials plus the latest provisional, projected financials (and a Detailed Project Report for projects), GST returns and bank statements, KYC and constitution documents, group details, and security particulars with valuations and title documents.
What are the 6 C’s of credit?
Character, Capacity, Capital, Collateral, Conditions and Cash flow. They summarise what a bank assesses — the promoter’s integrity, ability to repay, own stake, available security, the operating environment, and the cash flows that will actually service the loan.
Why do banks reject loan proposals?
Common reasons include inconsistent figures across documents, a thin DSCR or current ratio, poor banking conduct or bureau record, unsupported revenue projections, and incomplete security or title. Most of these can be corrected before the proposal is submitted.
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