What is ICR? (Interest Coverage Ratio)

ICR (Interest Coverage Ratio) shows how many times a business's profit can pay its yearly interest bill.

Written 18 September 2026. For bankers in India.

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In one line

ICR is operating profit divided by yearly interest cost. A ratio of 3 means profit covers interest three times over.

Why it matters to you

• It checks interest safety, not full repayment. ICR does not check if the loan's principal can be repaid.
• A falling ICR is an early warning. It can drop before other numbers show stress on the account.
• Lenders use it as a loan condition. Many loan agreements set a minimum ICR the borrower must keep.
• The formula has more than one version. Using EBITDA instead of EBIT can change the answer by a lot.
• It works best with other ratios. DSCR and current ratio complete the picture ICR alone cannot give.

How it works

BANKPULSE VIEW: ICR compares a year's profit before interest and tax with that year's interest bill.

ICR = profit before interest and tax ÷ interest expense.

Define each word.

• Profit before interest and tax. Also called EBIT (Earnings Before Interest and Tax), the operating profit before interest and tax.
• Interest expense. The interest a business pays in the year, on all its loans and debts.

BANK PRACTICE: sources we checked use two common variations on this formula.

• EBITDA in place of EBIT. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) gives a higher ratio than EBIT.
• Net interest in place of gross interest. Some sources subtract interest income from interest expense first, which raises the ratio.

Ask your lender's policy which version it uses, before you compare your ICR against its floor.

Worked examples

All figures below are computed by machine.

Example 1: EBIT and EBITDA give different answers

• Gross profit: Rs 1,80,00,000. Depreciation: Rs 30,00,000. Other operating cost: Rs 50,00,000.
• EBIT: Rs 1,80,00,000 minus Rs 30,00,000 minus Rs 50,00,000 = Rs 1,00,00,000.
• EBITDA: Rs 1,00,00,000 plus Rs 30,00,000 depreciation added back = Rs 1,30,00,000.
• Interest expense for the year: Rs 40,00,000.
• ICR on EBIT: Rs 1,00,00,000 ÷ Rs 40,00,000 = 2.50.
• ICR on EBITDA: Rs 1,30,00,000 ÷ Rs 40,00,000 = 3.25.
• The same company shows 2.50 or 3.25. Say which formula you used.

Example 2: gross interest and net interest give different answers

• A trading company has EBIT of Rs 1,00,00,000.
• It pays interest of Rs 45,00,000 on its loans.
• It also earns interest of Rs 5,00,000 on its bank deposits.
• Net interest expense: Rs 45,00,000 minus Rs 5,00,000 = Rs 40,00,000.
• ICR on gross interest: Rs 1,00,00,000 ÷ Rs 45,00,000 = 2.22.
• ICR on net interest: Rs 1,00,00,000 ÷ Rs 40,00,000 = 2.50.
• Say which interest figure you used, gross or net, when you report an ICR.

Example 3: checking against a closed, historical RBI floor

• This example uses the one-time 2020 RBI floor, explained under "What the rule says" below.
• Company A: EBIT Rs 42,50,000. Interest expense Rs 25,00,000.
• ICR: Rs 42,50,000 ÷ Rs 25,00,000 = 1.70. This exactly meets that scheme's old floor.
• Company B: EBIT Rs 36,00,000. Interest expense Rs 25,00,000.
• ICR: Rs 36,00,000 ÷ Rs 25,00,000 = 1.44. This falls short of that old floor.
• That scheme is closed today. It is shown only to explain how the floor once worked.

What the rule says

NO RBI NUMBER (standing rule): the Reserve Bank of India fixes no ICR floor for an ordinary business loan today.

We checked the Reserve Bank of India (Project Finance) Directions, 2025. The words "Interest Coverage Ratio" do not appear anywhere in it.

HISTORICAL RBI RULE (closed scheme, does not apply today): RBI once fixed an Interest Coverage Ratio number. This was under the Resolution Framework for COVID-19-related Stress, dated 7 September 2020. That framework allowed a one-time restructuring for pandemic-hit businesses.

For most borrowers using that scheme, RBI named five key ratios to check:

• TOL/ATNW (Total Outside Liabilities to Adjusted Tangible Net Worth).
• Total Debt to EBITDA.
• Current Ratio.
• DSCR.
• Average DSCR (ADSCR).

The framework set these floors for an account using the scheme:

• Current Ratio: 1.0 or above.
• DSCR: 1.0 or above.
• Average DSCR: 1.2 or above.
• A different, sector-specific floor applied instead for some named sectors.

For one sector only, Trading – Wholesale, the floor was different again. That sector used Interest Coverage Ratio of 1.70 or above, in place of DSCR and Average DSCR.

Lenders had to reach these levels by 31 March 2022. That deadline has passed. This scheme is closed. It sets no ICR floor for a loan taken today.

BANK PRACTICE: sources we checked read an ICR above 3 as healthy for most sectors. They read 1.5 to 3 as needing a closer look, more so for uneven sales. They read below 1.5 as a warning sign, and below 1 as a sign that profit cannot cover interest. Loan covenant floors found in market sources commonly sit between 1.25 and 1.5. These are each source's own reading, not an RBI rule.

Common mistakes

• Calling the 2020 floor a rule for today's loans. That scheme is closed. It does not bind a fresh loan.
• Mixing EBIT and EBITDA without saying which. The two give different answers for the same company.
• Reading ICR as proof a loan can be fully repaid. ICR checks only interest cover, never principal.
• Ignoring whether interest income was netted off. Gross and net interest expense give different ratios.
• Using only one year's ICR. A trend across three years shows more than one year can.
• Treating a bank's own covenant floor as an industry standard. It is that lender's own choice.

How to use it at your desk

1. Take the latest profit and loss account.
2. Work out EBIT: profit before interest and tax.
3. Ask if your bank wants EBIT or EBITDA, and use that one.
4. Take the yearly interest expense from the same account.
5. Ask if your bank nets off interest income, and use that answer.
6. Divide profit by interest expense to get the ICR.
7. Compare it against your bank's own covenant floor, not an assumed number.
8. Note in the credit file which formula and which figures you used.

Related terms

• DSCR — DSCR checks cover for the whole loan repayment. ICR checks cover for interest alone.
• TOL/TNW — TOL/TNW checks how much a business owes outsiders. ICR checks if profit covers interest.
• Current ratio — Current ratio checks short-term safety on one date. ICR checks yearly interest cover.
• Product pages: Working capital rules, MSME loan rules.

Quick check

Does the Reserve Bank of India fix one ICR floor for every business loan today?

Answer: No. That floor existed only for a closed 2020 scheme, for one sector.

A company has EBIT of Rs 60,00,000 and interest expense of Rs 20,00,000. What is its ICR?

Answer: Rs 60,00,000 ÷ Rs 20,00,000 = 3.00.

Does ICR tell a lender if the borrower can repay the loan's principal?

Answer: No. ICR checks only interest cover. DSCR checks cover for the full repayment.

Sources

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