Vinu: Manu, most borrowers submit detailed projections. Yet many of them fail in reality. Why?

Manu: Because projections are usually optimistic, not operational. They reflect what promoters hope will happen, not what the business can realistically deliver.

Vinu: From the beginning, what is the most common reason for failure?

Manu: Overestimated sales. A unit showing ₹4 crore turnover suddenly projects ₹7 crore next year without capacity expansion or new customers.

Vinu: What is the next weak area?

Manu: Underestimated expenses. Power, labour, logistics and interest costs are kept artificially low to show higher profit and DSCR.

Vinu: How does working capital get ignored in projections?

Manu: Sales are increased, but debtors and inventory days remain unchanged. In reality, higher sales usually block more cash.

Vinu: Can you give a simple example?

Manu: If projected sales increase by ₹1 crore, but receivables rise by two more months, around ₹17 lakh gets blocked immediately in debtors.

Vinu: How should a banker stress-test projections?

Manu: Reduce projected sales by 10%, increase key costs by 5%, and extend receivable days. Then recalculate cash accruals and DSCR.

Vinu: What if DSCR falls below comfort after stress-testing?

Manu: It means the project is fragile. Even a small business shock can affect EMI servicing.

Vinu: Do bankers rely too much on final projected profit?

Manu: Yes. What matters is stressed cash flow, not base-case profit.

Vinu: How do you test promoter claims?

Manu: By linking projections with past trends, capacity utilisation, market orders and bank account turnover.

Vinu: Final message for bankers?

Manu: Never approve a loan on best-case projections. Always test the worst-case impact first.

Vinu: That clearly explains why projections fail.

Manu: And how bankers can prevent avoidable credit mistakes.

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