RBI repo rate: Crisil says India Inc can absorb 50-bps rate hike as corporate balance sheets remain strong

Indian companies are in a position to withstand a moderate increase in interest rates, with strong balance sheets and low leverage providing a cushion against tighter financial conditions, according to Crisil Ratings. The rating agency said a rate hike of up to 50 basis points would be largely manageable for India Inc, although some sectors could face pressure.

Crisil’s assessment shows that the median gearing of rated companies is around 0.5, reflecting relatively strong balance sheets. The agency said this financial strength should help companies absorb higher borrowing costs without a significant deterioration in their credit profiles.

Its sensitivity analysis found that a 25-basis-point rate hike would reduce median interest coverage by only around 10 basis points, while a 50-basis-point increase would lower it by about 20 basis points.

Under its scenarios, interest coverage could remain around 5.1 times in the event of a 25-basis-point hike and around 5.0 times with a 50-basis-point increase.

Crisil also noted that previous rate-hike cycles have had limited impact on the credit profiles of sectors, suggesting that corporate balance-sheet strength can provide a buffer during periods of higher borrowing costs.

Infrastructure remains relatively resilient

Infrastructure sectors are expected to remain broadly resilient even if rates rise. Crisil said strong debt-protection metrics, tariff pass-through mechanisms and healthy demand would provide support.

However, commercial real estate could see a moderate impact on debt-service coverage ratios in a 50-basis-point rate-hike scenario.

The resilience of infrastructure is also supported by continued government capital expenditure, which Crisil has identified as one of the factors supporting

India Inc’s overall credit-quality outlook for FY27.

Banks may see credit demand remain strong

The potential impact of higher rates comes against a backdrop of continued credit growth. Crisil expects bank credit growth of 14.5–15.5% in FY27, with MSME and retail lending remaining key drivers.

Corporate credit growth is expected to receive support from continued substitution of bank loans by the bond market and greater utilisation of working-capital limits. A rate increase could extend this substitution until bank lending rates adjust to the higher policy environment.

Crisil expects banks to maintain stable credit profiles, supported by strong capitalisation and resilient asset quality. Non-performing assets are expected to remain rangebound, although newer loan vintages, particularly in rapidly growing MSME segments, remain under watch.

Risks remain beyond interest rates

While corporate balance sheets provide protection against moderate rate increases, Crisil continues to monitor broader risks. Prolonged geopolitical tensions, supply-chain disruptions and elevated crude prices could put pressure on corporate cash flows.

Higher-than-expected inflation and interest-rate increases could also moderate consumer demand, while weather-related stress extending into the Rabi season could weigh on rural incomes.

Overall, Crisil has retained a stable credit-quality outlook for FY27, supported by strong corporate balance sheets, stable asset quality and capitalisation in the financial sector, as well as government-led capex and policy initiatives.