Vinu: Manu, when an SME loan proposal comes in, what is the first red flag you look for?

Manu: Unrealistic growth. If last year’s turnover is ₹2 crore and the proposal shows ₹4 crore next year without capacity expansion, it’s a warning.

Vinu: What is the next common red flag?

Manu: Weak cash flow. Profit of ₹25 lakh looks fine, but if operating cash flow is negative, repayment risk is high.

Vinu: How do inflated working capital figures show risk?

Manu: When debtors jump from ₹60 lakh to ₹1.4 crore without matching sales increase, it usually indicates window dressing.

Vinu: What about promoter contribution?

Manu: If margin money of ₹30 lakh is shown, but it is only an unsecured loan routed temporarily, it’s not a real stake.

Vinu: Do frequent limit enhancement requests indicate anything?

Manu: Yes. Repeated requests often signal margin pressure and poor internal cash generation.

Vinu: Are related-party transactions a concern?

Manu: Definitely. Heavy sales or expenses with group concerns can hide diversion of funds.

Vinu: How do projections themselves become a red flag?

Manu: When margins improve sharply but raw material cost, wages and power expenses stay flat. That is not operationally realistic.

Vinu: What role does bank account conduct play?

Manu: Low routing of sales, frequent overdrawings and cheque returns indicate weak financial discipline.

Vinu: Any red flag linked to security?

Manu: Overdependence on collateral. A weak business backed only by property is still a weak proposal.

Vinu: Final advice for bankers?

Manu: Red flags are visible at appraisal stage itself. Early questioning saves the bank from future NPAs.

Vinu: That clearly explains how to identify trouble early.

Manu: Exactly—good credit begins with timely doubt.

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