Companies’ interest payments are set to move up as interest rates are expected to rise in an increasing rate cycle where reserve Bank of India ,reserve Bank of India) has already increased the policy rate by 140 basis points.

Interest payments will also increase due to global financial conditions and inflationary pressures.

Earlier, the falling interest rate regime has helped in improving the debt servicing capacity of companies. Thus the interest coverage ratio has improved in FY22.

But while the reforms are skewed in favor of large enterprises, the MSME sector is still under pressure. Smaller industries remained weak in terms of interest coverage ratio.

In both FY21 and FY22 years, the losses have attained a negative ratio. For micro enterprises also, a similar trend has been observed. This is despite the measures taken by the government and RBI to improve the credit health of the MSME sector including the ECLGS scheme.

“Obviously, this ratio is a concern for small and micro enterprises which has remained below 1 since FY18. So before that covid At the same time, the ability to repay loans in these sectors was deteriorating,” the study said.

Industry-wise, aviation, consumer durables and hospitality still face significant risks, post-Covid slowdown. However, some basic sectors like capital goods, iron and steel, construction have better interest coverage ratio.

Interest coverage ratio improved in FY21 due to fall in repo rate and valryAnd a similar trend continued in FY22.

In the last financial year, despite a reduction in operating margin (operating profit/net sales), interest coverage of companies improved, clearly reinforcing the view that RBI’s accommodative policy supported this trend.

The companies’ operating profit has grown at a compound annual growth rate of 8.4 percent, while interest has grown by 4.8 percent over the past five years.

The average interest cover of the companies for five years has been 4.8.