Understanding DSCR for Loans in Bangladesh (Simple Explanation)

By Abdul Latif · Educational content · Updated 2026

DSCR is one of the most important ratios banks use when evaluating loan applications in Bangladesh, especially for business loans, SME loans, and project finance. Many borrowers get rejected simply because they do not understand DSCR or how it is calculated.

Simple meaning: DSCR (Debt Service Coverage Ratio) shows whether your income is enough to pay loan installments comfortably.

What Is DSCR?

DSCR stands for Debt Service Coverage Ratio. It measures the relationship between your available income and your total loan repayment obligation.

In simple terms:

DSCR = Net Income ÷ Total Debt Obligation

Why Banks Use DSCR

Banks use DSCR to understand repayment capacity and risk. A higher DSCR means the borrower has sufficient income buffer.

To ensure loan repayment safety
To reduce default risk
To comply with internal credit policies
To evaluate sustainability of cash flow

How Banks Calculate DSCR in Bangladesh

Component	Explanation
Net Income / Cash Flow	Income after expenses, taxes, and business costs
Total Debt Service	Loan EMI + interest + other fixed obligations

DSCR Formula (Practical)

DSCR = Annual Net Income ÷ Annual Loan Repayment

DSCR Example (Bangladesh Context)

Annual net business income: BDT 12,00,000
Annual loan installment: BDT 8,00,000

DSCR = 12,00,000 ÷ 8,00,000 = 1.50

A DSCR of 1.50 means income is 50% higher than loan obligation — banks like this.

Ideal DSCR Ratio for Loan Approval

DSCR Range	Bank Interpretation
Below 1.00	High risk — loan usually rejected
1.00 – 1.20	Very tight — high caution
1.25 – 1.50	Acceptable for many banks
Above 1.50	Strong repayment capacity

Common DSCR Mistakes by Borrowers

Overestimating income
Ignoring existing loan obligations
Not considering seasonal income variation
Assuming DSCR is only a formality

Banks calculate DSCR conservatively. Inflated figures can lead to rejection.

How to Improve Your DSCR

Reduce existing loans before applying
Increase documented income
Apply for a smaller loan amount
Extend loan tenure to reduce annual obligation
Improve business cash flow stability

DSCR vs EMI: What’s the Difference?

EMI is the installment amount. DSCR shows whether EMI is sustainable compared to income.

Frequently Asked Questions (FAQ)

Is DSCR applicable for personal loans?

Mostly for business loans, but some banks also consider DSCR-like affordability for personal loans.

Can DSCR change after loan approval?

Yes. Banks may review DSCR periodically for large or project-based loans.

Does higher DSCR guarantee loan approval?

No. CIB status, collateral, and policy rules also matter.

Can I calculate DSCR myself?

Yes. Use conservative income and realistic obligations for accuracy.