Unlisted Indian Companies Hit Lowest Leverage In 35 years: What's Happening?

Unlisted Indian companies are carrying the least debt they have in more than three decades. According to Business Standard Data from the Centre for Monitoring Indian Economy (CMIE) shows that the (D/E)  debt to equity ratio of unlisted non financial firms fell to 1.01 in FY25, the lowest since at least 1990 to 91, while interest coverage hit a 35 year high. The numbers point to stronger balance sheets, cautious borrowing, and a corporate sector that is financially healthier but still careful about fresh capital expenditure

A quiet but important shift in corporate India

Indian companies that are not listed on stock exchanges are more debt-light than ever before. According to CMIE data covering nearly 15,918 large unlisted non-financial firms, leverage has fallen to levels not seen since the early 1990s.

In FY25, the average debt to equity (D/E) ratio declined to 1.01, the lowest reading since at least FY1991. Just two years earlier, a ratio of 1.13 was already considered a historic low. The continued fall since then marks a decisive shift in how these companies fund themselves.

At the same time, these companies are earning more relative to their interest costs. The interest coverage ratio (which measures how comfortably profits can pay interest) rose to 2.78, the highest in 35 years and even higher than the FY07 peak during the pre-global financial crisis boom.

What Does This Debt Data Really Say?

According to Business Standard, the CMIE charts reveal two long-term trends unfolding together.

The first chart, tracking the (D/E) debt to equity ratio from FY1991 to FY2025, shows that unlisted companies carried significantly higher leverage through the 1990s and early 2000s. Ratios hovered well above 1.5 for long stretches, indicating heavy reliance on borrowing. After the global financial crisis, leverage fluctuated but remained elevated until a clear downward trend began post FY15. The FY25 reading of 1.01 places debt almost at parity with equity, something rarely seen in India’s corporate history.

The second chart shows the interest coverage ratio, starting near 1.6 in FY1991, peaking at 2.69 in FY07 during the pre-global financial crisis boom, and then weakening for several years. In FY25, coverage climbed to 2.78, surpassing even the 2007 peak. This means unlisted companies now earn nearly three times their interest obligations on average.

Simply, the numbers tell 3 clear factual stories: 

1. Profits are growing faster than debt

2. Interest costs are easier to manage

3. Financial stress risk is lower

Why Does The Debt-To-Equity Ratio Matter?

Very frequently asked, why does the D/E ratio get so much attention?

The (D/E) debt-to-equity ratio shows how much a company relies on borrowed money compared to shareholders' funds.

A higher number means greater vulnerability during downturns, when earnings fall, but interest costs remain fixed. A lower ratio reduces insolvency risk and the need for emergency refinancing.

Historically, Indian companies have used debt aggressively during growth phases, often leading to stress later. The current reading suggests that unlisted firms are deliberately avoiding that mistake. This is not about companies being unable to borrow. It reflects a choice to borrow less, even when profits and credit conditions allow more leverage.

How Do Unlisted Companies Differ From Listed Ones?

Listed companies operate under different incentives. They have easier access to equity markets and corporate bonds and are constantly evaluated on quarterly performance and return ratios. As a result, they often use moderate leverage to support growth.

Unlisted companies, by contrast, depend largely on bank credit and internal cash flows. With fewer refinancing options, they tend to prioritise balance sheet safety. 

That difference helps explain why deleveraging has been sharper among unlisted firms, even as profits across corporate India have improved.

What Does This Mean For Banks And NBFCs?

For lenders, lower leverage among unlisted companies has immediate and longer-term implications.

In the near term, corporate credit growth may remain measured, as companies rely more on internal funds. However, asset quality improves when borrowers carry lower debt and higher interest coverage. Historically, periods of low corporate leverage have been associated with fewer loan restructurings and defaults.

Over the medium term, the picture changes. With balance sheets now underleveraged, companies have significant borrowing headroom. Once demand visibility improves, credit growth can resume without repeating the stress cycles of the past.

Does Strong Balance Sheet Health Delay CAPEX?

Despite healthier finances, private investment has remained cautious. This is not because companies lack funding capacity, but because demand signals remain uneven across sectors.

However, the same balance sheet strength that delays capex today could accelerate it tomorrow. When confidence returns, financing will not be the bottleneck. Projects can be executed faster, with a lower risk of stalled assets or excessive leverage.

Are Unlisted Shares Worth Investing In?

Lower leverage and strong cash flows are undeniably positive signals. Clean balance sheets also tend to attract better valuations when companies eventually go public. That said, unlisted shares come with their own risks, such as limited liquidity, lower disclosure, and uncertain exit timelines. Balance sheet strength reduces financial risk, but it does not eliminate business or valuation risk.

Overall, the data show that Indian unlisted companies are financially stronger than at any point in the past 35 years. They are earning more, borrowing less and carrying far lower financial risk. 

The challenge ahead is not balance sheet repair but deciding when confidence is strong enough to invest again.