Private sector firms continue to maintain high interest cover ratio

India Inc maintained its high interest cover ratio (ICR) for FY25 which has been on an upward trajectory since the cessation of Covid-19. The ICR - defined as the ratio of profit before interest and taxes to interest payments – stood at 6.78 in FY25, up from 3.77 in FY20. A one-off positive blip was noticed in FY22 when it increased to 6.94 (due to non-business related income).   

 

The ICR has been headed northwards despite the sharp increase in interest rates with the Reserve Bank of India increasing the repo rate to 6.5 per cent till January 2025 from 4 per cent as of April 2022. The weighted average lending rate on outstanding loans has increased to 9.85 per cent in FY25, up by 92 basis points from 8.93 per cent in FY22, which was just before the Ukraine war. Yet, the ICR has been at high levels of 6.81 and 6.78 in FY24 and FY25, respectively. 

 

The improved performance of ICR in the last three years is also reflected in the continuing decline in banks’ gross non-performing assets (NPA) ratio.