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Information on Indian companies
5 Key Ratios for Commercial Loan Underwriting

Over time, financial ratios have been used to quickly evaluate the financial and operational health of a company. Ratios are precise, yet elaborate enough in their own way.

Most of these ratios can be calculated through financial statements and then compared with industry benchmarks to get a broader understanding. For bankers, the interpretation of the ratio is far more critical than the computation. Validation of solvency and performance are the two essential characteristics of such financial ratios.

Selection of critical ratios is essential for bankers to access asset management, capital management, liquidity, risk, and profitability.

To make it easier we have listed five key financial ratios required for commercial loan underwriting:

5 Key Financial Ratios to Commercial Loans Undertaking - A detailed InfographicProfit Margin Ratio: This is a widely used profitability ratio, and it indicates the amount of profit generated over sales. This ratio measures the company’s ability to earn enough profit to sustain its business. Profit margins often vary from industry to industry, so, a prudent banker should always compare it with close competition and with the average industry standard.

Debt Ratio: This is a solvency ratio, which indicates the debt level of the borrower as a percentage of total assets. A lower debt ratio suggests more stable business and the higher is reverse. A ratio of 0.5 or less is considered as healthy, as this means the company has two times the assets as compared to liabilities. Anything more than 0.5 should be carefully examined before consideration.

Loan to Value (LTV) Ratio: This is a risk assessment coverage ratio that is very critical for mortgage underwriting. The LTV ratio ensures that the collateral is worth higher than the size of the loan. Higher the LTV ratio, more the risk involved.

Debt Service Coverage Ratio (DSCR): This is a liquidity ratio, which indicates the amount of cash generated by the business to service its debts (principal, interest, and leases). DSCR validates the borrower’s capacity to pay back the debt and keep running the business. DSCR between 1.25-1.5 is a relatively safe number to consider. However, it differs from business to business and depends on the risk aversion policies of the bank.

Net Worth to Loan Size Ratio: This ratio is used to compare the borrower’s net worth to the size of the requested loan. A high net worth indicates stable financial health, ultimately ensuring the repayment of the loan.

Ratio analysis is a proven technique to carry out quantitative analysis. However, financial ratios often vary across different industries and sectors, and comparisons between entirely different companies might not be advised.

So, it is advisable to examine industry peers through PEER COMPARISON to get more meaningful insights about the industry.

Use Probe42 to

  • Access key ratios by downloading financial statements in an excel format
  • Compare with peers in the same industry
Volume or Value: What type of market share should your business focus on?

Running a business with a high market share is profitable, points out various studies. Why is that so?

There could possibly be three explanations for it:

Economies of scale

A company with a 30% market share operates at twice the scale as that of one with 15% market share. So, the former is more likely to bring in operational efficiencies within a type of production technology.

Leadership strength

Also, large size and leadership in the business permits them to bargain effectively or get higher prices for their product than its competitors.

Management quality

Being a market leader also gives them the ability to attract the best of talent that in turn maximizes productivity for the organization.

High market share does give a solid foundation to your business.

What type of market share should you aim for? Especially in these times, when inflation has hit a high and there are concerns regarding global economic slowdown. Should you focus on the value share or rev up the volumes?

What market-share goals are desirable depends on a lot of factors including the competitor’s strength, capital available to support a strategy and the willingness of the management to forego present earnings for future results.

Here are the steps to make the right choice:

Product life cycle stage

India is a promising market for many products – thanks to its favourable demographics. Some product categories have already seen a lot of penetration while others have not. Find out at what stage your product is in. If it is in the nascent stage, you may play the volume game. Once the penetration increases and customers start showing loyalty towards products and brands, you can move up the value curve.

With inflation looming over, customers worldwide are axing their luxury budgets. Ensure your products give the necessary value proposition to customers.

Competitive advantage

Is cost efficiency your biggest strength? Then, it might make sense to reduce prices and focus on volumes. While lower pricing reduces margins, overall cost efficiencies also make up for it by using idle capacities.

Further, if product differentiation, customer intimacy or product innovation is your greatest strength, you might someday want to graduate towards value-additive products that not only boost market share in value but also have the opportunity to improve short-term earnings and cash flows.

One can also adopt a balanced approach by playing value or volume strategies for different segments of the market. Or perhaps play the volume game in each product segment in order to capture overall market share in terms of value.

Assessing competitor position

Any business strategy analyzes a competitor’s position thoroughly. What are their market shares (volume and value), their competitive strength and weaknesses, financial position and so on?

The level of analysis has to be deep and specific. For instance, an industry-wise study might show that as the market share of companies’ increases, the purchase to sales ratio falls. What explains this relationship?

One possibility is that as the company gains higher market share, they are getting vertically integrated, resulting in lower purchases to sales ratio. If that’s the case, then they are possibly ‘making’ more than buying (from outsiders) which should reflect the rise in manufacturing costs.

Perhaps it is possible that despite the vertical integration, manufacturing costs are getting offset by increasing efficiency (economies of scale).

You need to lay threadbare the unit economics concerning your business by leveraging on competitor’s financial and business data. Many cloud-based databases are providing this information at the click of a button.

Similarly, you can analyze industry data on marketing and advertising expenses and R&D to set your internal budgets. Many businesses today have an internal strategy team that scouts for acquisition opportunities based on ongoing financial data and valuations.


Market-share goals depend on a lot of factors including the competitor’s strength, resources available and the willingness to forego present earnings for future results. Use data to stay ahead of the curve.


About Probe42:

  • Probe is an independent Information Services company focused on providing financial information on Unlisted and under-covered companies in India
  • Our Customers have found value in using to enable their decisions involving Identifying prospects, sales preparation, credit and competitor analysis, etc.
  • The Probe42 platform has been extensively used by Banks and Corporates.



Credit Management Playbook:  How to smartly use Probe42 tools to take better credit decisions for your business?

Conventional tactics for prospecting good leads might not work for B2B marketers in 2022. This is simply because the pandemic years have altered the way purchasers act and make purchases. A recent study by Mckinsey Research found that 90% of B2B sales have switched to digital channels.

Businesses are increasingly creating leads through a variety of digital channels, including SEO, banner advertisements, websites, and social media.

Background check

Unlike sales made through references or word-of-mouth, sellers often have little information about their digital buyers. While embarking on a new business relationship, a thorough background check of prospective buyers is a must.

Is the buyer a legal business entity with proper licenses to perform work?

Cloud-based databases like Probe42 make it possible to do thorough preliminary checks of prospective buyers in an instant. After selecting the company, click on the tab ‘About the Corporate’ of Probe42 to get all the important company information in a user-friendly format. Also, check for its e-filing status. ‘Active’ status indicates that the company is operational, as per Ministry of Corporate Affairs (MCA) records.

Since these data are updated by Probe42 from the MCA website on a regular basis, you get a whiff of any change in listing status, location or industry of operation from its CIN status (alternatively Probe records). To ensure you get the latest information, Probe42 also provides the exact date and time when the documents were updated from the MCA website.

Furthermore, use the contact details to check the verity of the company details and seek further information.

Probe the Director’s details

Once you analyze the basic company details, conduct a background check of its key people. Go to the ‘Director’ tab and have a glance at the list of directors on the company board. Click on the name of the director to figure out their directorships in other companies. Red flag those having directorships in companies with bad or questionable governance standards.

Probe42 also gives information on the ‘status’ of the companies in which an individual is a director. Some companies shut down due to negligence or bankruptcy and reopen under a new name. Check if directors are on the board of such companies and if their e-filing status is ‘active’ or not.

What’s the shareholding pattern?

Then, click on the tab ‘Structure’ to get details about the shareholding pattern of the company as well as the history of corporate actions (security allotments).

Usually, a high promoter stake indicates that the promoters have a belief that the company has potential for growth in the future. If the stakes are rising, again it’s construed as a sign of confidence in the business.

A more diversified set of investors – including foreign funds, mutual funds, insurance as well as retail investors underscores its popularity among the shareholding community. This applies more to listed companies. The good presence of institutional investors also indicates that the promoter has little room to take random decisions, while the presence of domestic funds is also considered a good sign since these institutes seek more clarity and transparency in the company operations.

Additionally, research the information provided about the subsidiary and associate companies to get a bigger picture of the group operations and ensure there are no governance-related issues.

Security allotments in turn can reveal a lot about the fundraising activities – be it by way of equity or debt. Those seeking company equity shares as compensation for their product or services should deeply look at valuations at which equity shares were allotted to investors/promoters in the recent past. In the past, a leading media company had barter deals typically with mid-sized companies, whereby shares (instead of cash) of advertising companies were sought as compensation for advertising in their media.

Check credit worthiness

It’s possible that a company might operate in an interest-rate-sensitive sector but still have financial prowess. A glance into its financials will give you a glimpse of its indebtedness and liquidity situations. For instance, a cash-rich company or those with zero debt on its books are on a better footing than those struggling with rising financial costs and increasing debt-to-equity ratio.

Click on the tab ‘Financial Data’ to get historical details of the company’s financials. Read the blog How to analyze the financial performance of a company in a flash to know the process of doing a financial analysis of a company.

Moreover, while analyzing the financial status, analyze the business and financial risk profiles of the company and its subsidiaries as well. This is because of a high degree of operational and management integration, common promoters, and shared brand equity. One way to keep yourself updated is by actively tracking its ratings and update. This could be found by clicking the tab ‘Compliance’ and selecting ‘credit ratings’ from its contents.

Is the company under question better than its peers? Moreover, does it matter to you?

It does. Take,  for instance, the payables to sales (days) of a company is 57 days as compared to 27 days for the industry. It means that the company takes more than the usual time to repay its suppliers. If such companies are also exhibiting weak financials, you might perhaps consider reducing the credit period for them. It is likely that the company is not having enough cash or revenues to meet its short-term obligations. This information can also help you internally rate customers and devise suitable credit policies.

Compliance check

Have there been any pending lawsuits or criminal convictions?

Click on the tab ‘Compliance Check’ to get information on cases filed against the company as well as filed by them. It also provides details about the category of the case (insolvency, legal, etc) in addition to the court and the last date of hearing. If a large financial obligation is likely, take note of it.

Additionally, check if the company has a BIFR or CDR history. Browse through their GSTINs (active and inactive) as well as the latest GST filings to get a glimpse of their tax compliance.

Not the least glance through the auditor’s comments. Unaudited financial results might be misleading and perhaps fraudulent. That’s where the role of the auditor comes into play with his primary goal being to express his opinion on whether the financial statements of a company are reasonably accurate and provide adequate disclosure of transactions.

Specifically look for adverse auditor’s opinion, if any that indicates that a company’s financial statement is misstated and does not accurately reflect its financial performance and health. Sometimes, the auditor could make an adverse opinion highlighting issues such as poor internal financial control measures of the company.


Cloud-based databases like Probe42 make it possible to do thorough preliminary checks of prospective buyers in an instant and that too remotely. Use it to take better credit decisions and boost sales.


About Probe42:

  • Probe is an independent Information Services company focused on providing financial information on Unlisted and under-covered companies in India
  • Our Customers have found value in using to enable their decisions involving Identifying prospects, sales preparation, credit and competitor analysis, etc.
  • The Probe42 platform has been extensively used by Banks and Corporates.



Reversal of interest rate cycle – Are you fully quantifying the credit risk?

A ship in harbour is safe, but that’s not what ships are built for. Similarly, it is next to impossible to grow a business without taking credit risks. However it’s important that risk mitigation measures are also in place lest your business succumbs to a stormy business environment.

RBI recently increased the repo rate, the rate at which commercial banks borrow money by selling securities to RBI, by 40 basis points. The annualized yield of 10-year benchmark government bond yields in turn is now at 7.2% – up by 100 basis points since Aug 2021.

The central bank usually increases interest rates whenever inflation goes above their comfort levels. A higher interest rate tends to moderate economic growth by keeping a check on demand. For one, high-interest rates increase the cost of borrowing and reduce disposable income thereby putting limits on consumer spending.

With interest rates bottoming out, and with further rate hikes expected in the future, it is important that your credit management systems are in place.

Determine sector-wise exposure

First of all, assess your customer’s sensitivity to interest rate shocks. One of the ways to do this is by classifying them into industries they belong to.

Banking and finance, auto, real estate, consumer durables, capital goods and allied sectors tend to get more affected by a rate hike than the others. For instance, an increase in interest rates (which is usually linked to repo rate) for a house or car loan affects the affordability factor. Instead of paying higher EMI, potential customers might prefer waiting on the sidelines. This in turn could affect the businesses/finances of residential property builders and auto manufacturers and their ability to make payments to you on time. So, find out how much percentage of revenues comes from these vulnerable sectors?

Promptly, red-flag customers in these sectors with a history of late payments, legal issues and bankruptcy.  Review their credit policies periodically and if need be, move towards a 100% prepayment model to avoid potential bad debts.

Analyze creditworthiness

A company might operate in an interest-rate sensitive sector but still exude financial prowess. So, have a look at company’s financials to get a glimpse of its indebtedness and liquidity situations.

In a rising interest rate scenario, the profitability of debt-ridden (leveraged) companies takes a hit in two ways – one by way of drop-in company sales from reduced consumer demand and two, from its higher financial costs.

However, cash-rich companies or those with zero debt on their books are on a relatively better footing.

Moreover, while analyzing the financials, look at the business and financial risk profiles of the company and its subsidiaries as well. A high degree of operational and management integration, common promoters, and shared brand equity makes the consolidated performance more relevant.

Similarly, figure out if the customer is part of a big industrial group with deep financial pockets? If yes, they usually tend to have the financial backing of its parent to wade through tough times.

One way to keep yourself updated about the financial status of a customer is by actively tracking ratings of its debt papers as well as their updates.

Step-up data intelligence

Cloud-based databases often give deep and critical financial information about customers, competitors as well as industry. By leveraging such data, credit managers can easily assess creditworthiness and make informed business decisions. Moreover, it is important that this data is up-to-date and relevant to facilitate quick decision-making. For instance, analyzing financial performance of customers over the long-term and across multiple business cycles could give an inkling of its resilience factor.


Reversal of the interest rate cycle can increase bad debts if proper credit risk management systems are not in place. Ensure you use data insights to stay ahead of the curve.

About Probe42:

  • Probe is an independent Information Services company focused on providing financial information on Unlisted and under-covered companies in India
  • Our Customers have found value in using to enable their decisions involving Identifying prospects, sales preparation, credit and competitor analysis, etc.
  • The Probe42 platform has been extensively used by Banks and Corporates.




Popular company identifiers you should know and their importance

Once a private bank was sifting its corporate client list using PAN numbers. To their surprise, they found the names of 15 clients registered under a single PAN. In effect, 15 different versions of its name had led to the client name being registered differently by the bank officials.

Company identifiers are a valuable database tool that can be strategically used by banks and corporations in various areas including CRM and risk management.

Here are some of the popular company identifiers that you should know of:


CIN or Corporate Identification Number is a 21-digit alphanumeric code that is assigned by the Registrar of Companies (ROC) to companies registered in India. It is provided to all companies including private/public limited companies, one-person companies, companies owned by the Government of India and State Government companies. However, for Limited Liability Partnerships (LLP) registered in India, a separate seven-digit identification number called the LLPIN (Limited Liability Partnership Identification Number) is given by ROC.

The 21-digit CIN is easily translatable and helps in finding basic information about the company. Moreover, any change in listing status, location or industry of operation and you get a whiff of it from its CIN status.


GSTIN is an abbreviated form of Goods and Services Tax Identification Number that is allotted by GST Network after applying for the GST registration.

GST is a destination-based indirect tax levied on the supply of goods and services. So, a company operating in two or more states applies for a separate 15-digit GSTIN number in each state. GSTIN can provide information about the business entity, date of registration, the state in which it is operating as well as the kind of business it is doing.

For instance, its 13th digit denotes the number of registrations the business entity has for business verticals in the state and under the same PAN.  So, if the business gets a GST number for its fourth business vertical in the state, its 13th digit will be 4 and so on.


A Permanent Account Number or PAN is a 10-digit alphanumeric number that contains vital information about the PAN cardholder and is arguably the most popular company identifier. For instance, an entity might have multiple GSTIN registrations due to its operations in different states or due to its operations in multiple business verticals in a single state. However, all such GSTINs will have to be compulsorily linked to the same PAN of the entity. Thus, one can use PAN to identify, for instance, the lending exposure of a bank to a single business group.


From the 1st of April 2021, this 20-digit Legal Entity Identifier or LEI is applicable for all payment transactions of value Rs 50 crore and above undertaken by entities (non-individuals) using centralized payment systems like RTGS and NEFT. All entities receiving or initiating transactions to that effect need to get the LEI number from the Legal Entity identifier India (LEIL).


Tax deduction and collection account number or TAN is a 10-digit alphanumeric identifier. It is compulsory to obtain TAN for individuals or businesses mandated by the Government to collect or deduct tax. A single entity can obtain different TANs for its various branches or divisions.

You can verify the TAN of anyone using the Income Tax Department’s website to ensure deductions for payments made to you were rightfully and legally done.

The Approach

Ministry of Corporate Affairs or MCA website gives CIN-based details, while the Income Tax website will give details about PAN and TAN. GSTIN-related company details could in turn be found on the GST government website.

Additionally, there are some cloud-based data providers that integrate all this company information and provide it in a user-friendly format. Use them as strategic tools for your business decision making.


About Probe42:

  • Probe is an independent Information Services company focused on providing financial information on Unlisted and under-covered companies in India
  • Our Customers have found value in using to enable their decisions involving Identifying prospects, sales preparation, credit and competitor analysis, etc.
  • The Probe42 platform has been extensively used by Banks and Corporates.