# MSME credit interview questions: first 25, with model answers

> 25 MSME credit interview questions on unsecured business loans, with model answers, made-up worked cases and RBI rules for commercial banks.

Source page: https://creditbrief.in/posts/msme-credit-interview-questions
Published: 2026-11-06
Publisher: CreditBrief

MSME credit interview questions on unsecured business loans mostly test whether a candidate can judge repayment from cash flow when no collateral stands behind the loan. The 25 questions below run from basics to judgement calls, and each one carries a model answer and the skill it tests.

Regulatory answers draw on the Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025, dated 28 November 2025 and updated as on 1 October 2026. Those Directions cover commercial banks only, as paragraph 3 defines them. All other answers are general working practice, and limits, ratios and programme rules vary by institution.

| Theme | Questions | Mostly for |
|---|---|---|
| Basics | 1 to 5 | Aspirants |
| Reading MSME financials | 6 to 10 | Aspirants and analysts |
| Worked questions | 11 to 15 | Analysts and officers |
| Credit reports, accounts and end use | 16 to 20 | Analysts and officers |
| Judgement and escalation | 21 to 25 | Credit managers |

## What are the basic MSME credit interview questions?

### 1. What is an unsecured MSME business loan?

**Level: aspirant.** An unsecured MSME business loan is credit to a micro, small or medium enterprise with no asset charged to the lender, so repayment rests on business cash flow and promoter conduct.

The product is usually a term loan or a clean overdraft. The RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026), in paragraph 4(1), describe a term loan as a loan with a specified maturity, payable in instalments or as a bullet. The same paragraph says an overdraft may be clean, meaning without any security.

Those Directions do not define MSME. Check the current classification rule before an interview rather than quoting thresholds from memory.

**What the interviewer tests:** whether you link unsecured lending to repayment capacity, not to a product label.

### 2. How does underwriting an unsecured MSME loan differ from a secured loan?

**Level: aspirant.** Underwriting an unsecured MSME loan differs from secured lending because no security gives the lender a second way out, so the cash flow assessment carries the whole decision.

These areas get more weight in an unsecured appraisal:

- Stability of cash flow across seasons and years
- Existing debt load, including recent unsecured borrowing
- Promoter stake and track record
- Repayment conduct in credit reports and bank statements
- Dependence on a few customers or suppliers

A personal guarantee can support the file, but a guarantee is not a source of repayment.

**What the interviewer tests:** whether you know what replaces collateral in the decision.

### 3. What is the difference between cash credit, overdraft and term loan?

**Level: aspirant.** Cash credit is a running account tied to current assets, an overdraft lets a customer draw an agreed sum beyond the credit balance, and a term loan has a fixed maturity. The definitions below summarise paragraph 4(1) of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026). The last column is working practice.

| Facility | What the Directions say | What to assess |
|---|---|---|
| Cash credit | Running account up to the limit, against hypothecation or pledge of goods, book debts, standing crops and similar security. Drawing power is periodically set from eligible current assets. Repayable on demand. | Quality of stock and debtors, and drawing power against use |
| Overdraft | Agreed sum drawn beyond the credit balance. May be secured or clean. | Account churn and whether the limit is really core debt |
| Term loan | Specified maturity, payable in instalments or as a bullet. | Debt service capacity across the tenor |

Because the definition of cash credit involves security over goods or book debts, cash credit is not the natural example of an unsecured MSME product.

**What the interviewer tests:** whether you can match facility type to the risk you assess.

### 4. Which lenders do the RBI Credit Risk Management Directions cover?

**Level: aspirant.** The RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) apply to commercial banks, not to every MSME lender.

Paragraph 3 defines commercial banks as:

- Banking companies, other than small finance banks, payments banks and local area banks
- Corresponding new banks
- State Bank of India

In an interview with an NBFC or a small finance bank, do not present these Directions as binding on that lender. Say that you would check the direction written for that lender type.

**What the interviewer tests:** whether you name the right direction for the right lender.

### 5. Can a bank rely on a CA or consultant's appraisal of an MSME borrower?

**Level: aspirant and analyst.** A commercial bank cannot rely on an outside appraisal, because paragraph 7 of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) requires its own independent and objective credit appraisal in all cases.

Paragraph 7 also says the bank must not depend on appraisal reports by outside consultants, especially the borrower's in-house consultants.

As working practice, statements and projections prepared by a chartered accountant are inputs. The analyst still tests them against GST returns, bank statements and credit reports.

**What the interviewer tests:** whether you treat borrower-side documents as claims to verify.

## How do you read MSME financials in a credit interview?

### 6. Which documents do you need to appraise an unsecured MSME loan?

**Level: aspirant.** An unsecured MSME loan appraisal generally needs financial statements, income tax returns, GST returns, bank statements, existing loan details and credit reports, with exact lists varying by institution.

| Document | What the document shows | What to ask |
|---|---|---|
| Financial statements | Profit, debt, net worth, working capital | Are the statements audited, and do the notes explain the movements? |
| Income tax returns | Income declared to the tax authority | Do the returns match the financial statements? |
| GST returns | Reported sales and purchases | Do all registrations of the business appear? |
| Bank statements | Actual flows and repayment behaviour | Are all operative accounts included? |
| Sanction letters and repayment schedules | Terms of existing debt | Do the instalments appear in the bank statements? |
| Credit reports | Borrowing and repayment history | Is every loan on the report declared by the borrower? |

**What the interviewer tests:** whether you know what each document proves, not only its name.

### 7. What is EBID and how does RBI define it?

**Level: analyst.** EBID, or Earnings before Interest and Depreciation, is defined in paragraph 4(1)(vi) of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) as the figure used for computing the debt service coverage ratio (DSCR).

```
EBID = Profit After Tax + Depreciation + Interest on debt + Lease Rentals, if any
```

The source text used here gives the EBID definition but no DSCR denominator and no minimum DSCR. Denominators and floors vary by institution, so state the version you use before you calculate.

**What the interviewer tests:** whether you can separate the RBI definition from institution-level practice.

### 8. How do you check the promoter's equity in an MSME business?

**Level: analyst.** Promoter equity is checked by tracing where the money came from, and paragraph 9 of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) requires a commercial bank to ascertain the source and quality of equity brought in by promoters or shareholders.

Paragraph 9 also requires the lender to ensure, at appraisal, that parent company debt is not infused as equity in a subsidiary or special purpose vehicle. The paragraph warns that multiple leveraging, especially in infrastructure projects, can camouflage ratios such as debt to equity.

As working practice for a smaller business:

- Trace capital introduced through the bank statements
- Check whether fresh personal or family borrowing funded the capital
- Ask how promoter loans rank against bank debt, since the treatment varies by institution

**What the interviewer tests:** whether you look behind the net worth figure.

### 9. How do you reconcile GST returns, ITR, financials and bank credits?

**Level: analyst.** A reconciliation of GST returns, income tax returns, financial statements and bank credits tests whether reported turnover is real. The steps below are working practice, and acceptable tolerance varies by institution.

1. Line up turnover for the same period from each document. Good looks like one table with the source named for every figure.
2. Remove non-business credits from the bank figure, such as inter-account transfers and loan disbursals. Good looks like a credit total that reflects sales receipts only.
3. Explain legitimate gaps, such as timing, exempt sales, cash sales, other bank accounts and other GST registrations. Good looks like an explanation backed by a document.
4. Flag what remains. Good looks like a named query to the borrower, not a silent adjustment.

**What the interviewer tests:** whether you investigate a mismatch before you conclude anything from it.

### 10. What red flags do you look for in an MSME bank statement?

**Level: aspirant and analyst.** MSME bank statement red flags are patterns suggesting that cash flow is weaker, or more borrowed, than the financial statements show. As working practice, look for:

- Cheques or auto-debits returned for insufficient funds
- Repayments to lenders that the borrower did not declare
- Round-tripping, where money moves out to a related party and comes back as a sale
- Large credits just before the loan application
- Cash deposits made just before instalment dates
- Credits concentrated in one or two parties
- Balances that repeatedly fall short around instalment dates

One flag is a question for the borrower. Several flags together change the view of the file.

**What the interviewer tests:** whether you read a statement for behaviour, not only for average balance.

## Worked MSME credit interview questions, made-up numbers

All figures in this section describe one invented firm, for practice only. The figures are not benchmarks or norms.

### 11. How do you calculate DSCR, using made-up numbers?

**Level: analyst.** DSCR, the debt service coverage ratio, compares cash earnings with debt obligations, and the made-up firm below has a DSCR of 2.00x before the new loan.

Inputs: profit after tax ₹18 lakh, depreciation ₹6 lakh, interest on debt ₹8 lakh, lease rentals ₹2 lakh, principal repayments ₹7 lakh a year.

| Step | Calculation | Result |
|---|---|---|
| EBID | 18 + 6 + 8 + 2 | ₹34 lakh |
| Annual debt service | 8 + 7 + 2 | ₹17 lakh |
| DSCR | 34 / 17 | 2.00x |

Lease rentals sit in both the numerator and the denominator here, for consistency. Conventions vary by institution.

**What the interviewer tests:** whether you can calculate quickly and state your convention.

### 12. How do a new loan and a stress test change DSCR, using made-up numbers?

**Level: analyst and officer.** A new loan and an earnings stress can take a made-up firm's DSCR from 2.00x to 1.17x and then to 0.94x, which shows how little cushion the firm has left.

Inputs: EBID ₹34 lakh, existing annual debt service ₹17 lakh, instalments on the proposed loan ₹12 lakh a year, and a stress of 20% off EBID. The working ignores the tax effect of the new interest, so EBID stays at ₹34 lakh after the loan.

| Scenario | EBID (₹ lakh) | Debt service (₹ lakh) | DSCR |
|---|---|---|---|
| Existing debt only | 34.0 | 17 | 2.00x |
| With proposed loan | 34.0 | 29 | 1.17x |
| With proposed loan, EBID down 20% | 27.2 | 29 | 0.94x |

The cushion is ₹5 lakh (34 minus 29). EBID can fall about 14.7% (5 / 34) before DSCR reaches 1.00x.

**What the interviewer tests:** whether you read the ratio after the proposed loan and under stress, not only as reported.

### 13. How do you calculate the cash conversion cycle, using made-up numbers?

**Level: analyst.** The cash conversion cycle is the number of days cash stays tied up in operations, and the made-up firm below has a cycle of 60 days.

Inputs: turnover ₹365 lakh, cost of goods sold ₹219 lakh, debtors ₹50 lakh, inventory ₹24 lakh, creditors ₹18 lakh.

| Measure | Calculation | Days |
|---|---|---|
| Debtor days | 50 / 365 x 365 | 50 |
| Inventory days | 24 / 219 x 365 | 40 |
| Creditor days | 18 / 219 x 365 | 30 |
| Cash conversion cycle | 50 + 40 - 30 | 60 |

Some analysts use purchases rather than cost of goods sold for creditor days, so state the base. A lengthening cycle raises a further question: is a term loan quietly funding slow collections?

**What the interviewer tests:** whether you link working capital days to cash pressure on repayment.

### 14. How do you calculate debt to tangible net worth, using made-up numbers?

**Level: analyst.** Debt to tangible net worth compares borrowings with net worth after removing intangibles, and the made-up firm below moves from 1.00x to 1.50x after the proposed loan.

Inputs: net worth ₹90 lakh, intangible assets ₹10 lakh, existing debt ₹80 lakh, proposed loan ₹40 lakh.

| Step | Calculation | Result |
|---|---|---|
| Tangible net worth | 90 - 10 | ₹80 lakh |
| Before the loan | 80 / 80 | 1.00x |
| After the loan | (80 + 40) / 80 | 1.50x |

Whether promoter loans count as quasi-equity changes the result, and the treatment varies by institution.

**What the interviewer tests:** whether you adjust net worth before you use it.

### 15. How do you compare bank credits with turnover, using made-up numbers?

**Level: analyst and officer.** Comparing net business credits with reported turnover shows how much of the sales figure the bank account supports, and in the made-up case below the account supports 80%.

Inputs: reported turnover ₹3.65 crore, total credits ₹3.40 crore, inter-account transfers ₹0.30 crore, loan disbursals ₹0.18 crore.

| Step | Calculation | Result |
|---|---|---|
| Net business credits | 3.40 - 0.30 - 0.18 | ₹2.92 crore |
| Share of turnover | 2.92 / 3.65 | 80% |
| Turnover not seen in the account | 3.65 - 2.92 | ₹0.73 crore |

The ₹0.73 crore gap is a query, not a finding. Check other bank accounts, cash sales and the timing of receivables first.

**What the interviewer tests:** whether you clean the credits first and investigate before you conclude.

## How do credit reports, accounts and end use come up in MSME credit interviews?

### 16. How do you use a credit report in an MSME appraisal?

**Level: analyst.** A credit report shows the borrowing and repayment history that the borrower's own documents may leave out, and paragraph 11 of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) deals with obtaining one.

Paragraph 11 requires a commercial bank to include in its loan policies or appraisal processes suitable provisions for obtaining Credit Information Reports from one or more Credit Information Companies. The stated aim is that credit decisions rest on information available in the system.

As working practice, read the reports for the entity and its key promoters, then check:

- Overdue, settled or written-off accounts
- Recent enquiries and newly opened unsecured loans
- Loans on the report that the borrower did not declare

Score cut-offs vary by institution.

**What the interviewer tests:** whether you read the report beyond the score.

### 17. What is the ₹10 crore rule for current accounts and overdraft accounts?

**Level: analyst and officer.** The ₹10 crore rule, in Chapter XIA of the RBI Commercial Banks Credit Risk Management Directions, 2025, decides which commercial banks may maintain a borrower's current or overdraft accounts. Chapter XIA was inserted with effect from 1 April 2026 by amendment directions dated 11 December 2025.

| Banking system exposure to the customer | What the bank may do | Paragraph |
|---|---|---|
| Less than ₹10 crore | Maintain current or overdraft accounts without restriction | 91C |
| ₹10 crore or more, with the bank holding at least 10% of aggregate exposure or of aggregate fund-based exposure | Maintain current or overdraft accounts as the customer needs | 91D(1) |
| ₹10 crore or more, with the bank not meeting the criteria | Maintain only collection accounts, subject to the provisos and exemptions | 91D(2) |

Paragraph 91F requires funds in a collection account to be remitted within two working days to the designated account. Statutory dues and dues to the bank maintaining the account may be debited first. Paragraph 91B places no restriction under Chapter XIA on cash credit facilities.

**What the interviewer tests:** whether you know the rule depends on system-wide exposure, not only your own bank's.

### 18. What are pass-through transactions and why do they matter in an MSME account?

**Level: analyst and officer.** Pass-through transactions are third-party flows routed through a borrower's account, and paragraph 91L of the RBI Commercial Banks Credit Risk Management Directions, 2025 (Chapter XIA, in force from 1 April 2026) bars accounts from being used that way.

Paragraph 91L requires a commercial bank to ensure an account is used only for the holder's authorised business. Entities licensed or authorised by a financial sector regulator may carry out third-party transactions within that authorisation.

Paragraph 91N calls for monitoring systems that flag:

- Unusually high transaction volumes
- Frequent pass-through activity
- Inconsistency between the stated line of business and the transactions

For an underwriter, inflated credits from such flows can also overstate apparent turnover. That second point is working practice.

**What the interviewer tests:** whether you connect account conduct rules to turnover assessment.

### 19. How do you check end use of an unsecured MSME term loan?

**Level: analyst and officer.** End use of an unsecured MSME term loan is best controlled at disbursal, and paragraph 91O of the RBI Commercial Banks Credit Risk Management Directions, 2025 (Chapter XIA, in force from 1 April 2026) says term loans should preferably go directly to the intended beneficiary's account or the specified end-use, where the beneficiary is identifiable.

The word is preferably, so do not describe paragraph 91O as an absolute ban on routing funds through the borrower's account. Paragraph 12 separately guides banks to the circular of 14 January 2011 on End Use of Funds Monitoring, which the Directions refer to but do not reproduce.

As working practice, when a general-purpose loan has no identifiable beneficiary, review the bank statement after disbursal. Look for transfers to related parties, repayment of other loans and flows unrelated to the stated purpose.

**What the interviewer tests:** whether you can quote the wording accurately and still give a practical control.

### 20. When does an MSME borrower need a Legal Entity Identifier?

**Level: analyst and officer.** A Legal Entity Identifier (LEI), a 20-digit code identifying parties to financial transactions, is needed when a non-individual borrower has aggregate exposure of ₹5 crore and above from banks and financial institutions, under paragraph 64 of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026).

Points to state:

- Exposure covers fund-based and non-fund-based exposure from banks and financial institutions, and financial institutions here include NBFCs and housing finance companies.
- The aggregate sanctioned limit or the outstanding balance counts, whichever is higher.
- Lenders can establish the position from their own information, the Central Repository of Information on Large Credits or a borrower declaration.
- Under paragraph 65, a borrower who fails to obtain the code gets no new exposure and no renewal or enhancement of existing exposure. Government departments and agencies are exempt.

**What the interviewer tests:** whether you count exposure across lenders, not only your own.

## What judgement questions do credit managers face in MSME interviews?

### 21. How does unhedged foreign currency exposure affect an MSME exporter or importer?

**Level: credit manager.** Unhedged Foreign Currency Exposure (UFCE) is foreign currency exposure excluding items that effectively hedge each other, and Chapter VII of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) can add provisions and capital on a commercial bank's exposure to the entity.

The main points for a smaller borrower are:

- Paragraph 57(1) requires the bank to ascertain foreign currency exposure at least annually.
- Paragraph 57(2) requires UFCE information quarterly, with statutory auditor certification at least annually.
- Paragraph 58(6) places an entity with insufficient data in the last bucket, at 80 basis points of incremental provision and a 25 percentage point increase in risk weight.
- Paragraph 58(7) gives an option for smaller entities that cannot provide UFCE information: 10 basis points of incremental provision over standard asset provisioning.
- Paragraph 4(1)(xvii) defines smaller entities as those with total banking system exposure of ₹50 crore or less.
- Paragraph 4(1)(xii) treats an exposure as naturally hedged only if the offsetting cash flow or maturity falls within the same accounting year.

**What the interviewer tests:** whether you can spot currency risk in a small business and name the fallback treatment.

### 22. How should stress scenarios and calamity risk enter an MSME appraisal?

**Level: credit manager.** Stress scenarios and calamity risk enter an MSME appraisal as tests of whether repayment survives a shock, and paragraph 12A of the RBI Commercial Banks Credit Risk Management Directions, 2025 requires a commercial bank's credit assessments to suitably factor in the possible impact of calamities on borrowers who may be affected. Paragraph 12A took effect on 1 July 2026, under amendment directions dated 29 April 2026.

Paragraph 8 requires sensitivity tests or scenario analysis, especially for infrastructure projects, including project delays and cost overruns. Its stated use is a view on project viability when deciding on deferment of the commercial operations date or on restructuring. Do not present paragraph 8 as a set template for small MSME loans.

As working practice, run a fall in sales, a squeeze in margin and slower collections. For a single-location unit, also ask what happens if that location stops working.

**What the interviewer tests:** whether you can apply a rule at its actual scope and still think about shocks.

### 23. Are there MSME activities a bank cannot finance on environmental grounds?

**Level: credit manager.** Yes, paragraph 43 of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026) restricts commercial bank finance connected with ozone depleting substances, and part of that restriction names small and medium scale units.

Paragraph 43 says:

- A bank shall not finance the setting up of new units consuming or producing ozone depleting substances.
- No financial assistance goes to small or medium scale units making aerosol units that use chlorofluorocarbons.

As working practice, ask about the manufacturing process when the sector could be affected, and escalate if the answer is unclear.

**What the interviewer tests:** whether you check activity restrictions, not only financial strength.

### 24. Can a bank lend to an MSME firm in which one of its directors is a partner?

**Level: credit manager.** No, a commercial bank cannot make that commitment, because paragraph 14 of the RBI Commercial Banks Credit Risk Management Directions, 2025 (28 November 2025, updated as on 1 October 2026), restating Section 20(1)(b) of the Banking Regulation Act, 1949, prohibits it.

The prohibition covers a firm in which a director of the bank is interested as partner, manager, employee or guarantor. Further points to state:

- Paragraph 15A(2) lists specific exceptions.
- Paragraph 42G, inserted with effect from 1 April 2026, extends paragraph 14 to a director's spouse and minor or dependent children, with a limited carve-out for a spouse with independent income.
- Paragraph 42L requires directors, key managerial personnel and specified employees to recuse themselves from decisions on loans involving themselves or their related parties.

As working practice, raise a suspected link with compliance and do not clear it yourself.

**What the interviewer tests:** whether you spot a statutory bar and escalate it.

### 25. What do you do when sales pushes for approval of a weak MSME file?

**Level: credit manager.** A credit manager under sales pressure on a weak MSME file should restate the case in numbers, record the view in writing and route any exception through the approved channel. This answer is general working practice, and exception routes vary by institution.

A strong answer covers these steps:

1. Name the specific weakness. Good looks like a ratio or a document gap, not a general doubt.
2. Say what would change the view. Good looks like a request for specific documents or a smaller or restructured proposal.
3. Record the recommendation and reasons. Good looks like a note another reader can follow later.
4. Use the formal route for any exception. Good looks like an approval at the right authority, never an informal assurance.

**What the interviewer tests:** whether you can hold a view and still work with the business team.

## What should a candidate not claim in an MSME credit interview?

A candidate in an MSME credit interview should not present institution practice, or memory, as an RBI rule. These are the common traps:

- **Invented norms:** the source text used for this page, the RBI Commercial Banks Credit Risk Management Directions, 2025 (updated as on 1 October 2026), sets no minimum DSCR, leverage ratio or bureau score for MSME loans.
- **Wrong lender type:** those Directions cover commercial banks as paragraph 3 defines them, so they do not automatically speak for small finance banks, payments banks, local area banks or NBFCs.
- **Stretched paragraphs:** paragraph 8 emphasises infrastructure projects, and paragraph 91O says preferably. Keep the wording accurate.
- **Confidential material:** do not share a current or past employer's internal credit policy, or any borrower's details, as an example.

## Sources

- [Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13153), rbi.org.in, accessed 2026-11-06

Indicative only. Verify against your institution's policy.