Corporate debt-servicing capacity improves, but share of vulnerable firms rises in Q4 FY26: RBI

Mumbai, The debt-servicing capacity of listed private non-financial companies improved in the March quarter of 2025-26, with the interest coverage ratio rising to 6.5, even as the share of financially vulnerable firms edged up, according to the Reserve Bank of India's Financial Stability Report.

The RBI said the improvement in the ICR, which is a key measure of a company's ability to meet interest obligations from operating profits, was driven by a stronger sequential increase in gross profits relative to interest expenses.

The ratio climbed to 6.5 in Q4FY26, the highest level in the last two financial years.


However, the central bank flagged emerging pockets of stress. The proportion of companies with an interest coverage ratio (ICR) below one, considered vulnerable because their operating profits are insufficient to cover interest costs, rose to 18.5 per cent in Q4 FY26, according to the report.

Companies with an ICR above four, considered financially stronger, accounted for 55.2 per cent of the total, while firms with an ICR between two and four made up 15.7 per cent.

Despite the increase in vulnerable firms, the RBI said the overall debt-service burden remained comfortable. The debt service ratio (DSR) of listed private corporates stood at 11.7 per cent in September 2025, below the long-term average of 12.2 per cent.

Balance sheet analysis of listed private manufacturing companies indicates that leverage, measured by the debt-to-equity ratio, continued to decline in H2:2025-26.

Fixed assets growth moderated to 5.2 per cent in H2 2025-26 from 10.3 per cent in H1 2025-26, largely due to weaker growth in non-ferrous metals, chemicals, cement, and automobile industries, which together accounted for 34.1 per cent of total fixed assets, the RBI said.

The fixed assets-to-total assets ratio declined, while the share of cash holdings in total assets increased during the period, it added.