Vinu: Manu, I came across two terms in a credit proposal — Collateral Coverage Ratio and Loan-to-Value Ratio. Are they the same thing?

Manu: Great question, Vinu. They're related but not the same. In fact, they’re almost like mirror images of each other.

Vinu: How so?

Manu: Let me explain. Collateral Coverage Ratio (CCR) tells you how many times the value of the collateral covers the loan amount. It's calculated as: 

CCR = Value of Collateral / Loan Amount 

On the other hand, Loan-to-Value Ratio (LTV) tells you what percentage of the collateral’s value is being financed by the loan. Its formula is: 

LTV = Loan Amount / Value of Collateral × 100

Vinu: Oh, so if the collateral is worth ₹1 crore and the loan is ₹60 lakhs, what would these ratios be?

Manu: Perfect. In that case:

• CCR = ₹1 crore / ₹60 lakhs = 1.67 times
• LTV = ₹60 lakhs / ₹1 crore × 100 = 60%

So, a 1.67x CCR means the collateral is 1.67 times the loan value. And a 60% LTV means the bank is funding 60% of the collateral value.

Vinu: Which one is preferred from the bank’s point of view?

Manu: From the bank’s view, a higher CCR is better because it means the loan is more securely backed. Similarly, a lower LTV is better — it shows less risk because the borrower is bringing in more margin.

Vinu: So, they both talk about the security of the loan — one from the bank’s protection side (CCR) and the other from the borrower’s funding side (LTV)?

Manu: Exactly! That’s a smart way to put it.

Vinu: Thanks, Manu. This cleared it up beautifully.