Indian Banks Unfazed by US Tariffs, Expect Minimal Impact on Credit Growth

Indian bankers are maintaining a calm outlook in the face of recently implemented 50% US tariffs, anticipating minimal impact on credit growth and asset quality in the banking sector. Despite concerns in certain export-oriented industries, the overall exposure of Indian banks to affected sectors appears to be limited.

Limited Exposure to Export Credit

The resilience of the Indian banking sector is underscored by the relatively small proportion of export credit in the overall lending portfolio. As of May-end, banks' export credit outstanding stood at ₹12,021.00 crore, representing less than 0.1% of the total bank credit of ₹183.00 lakh crore. This minimal exposure suggests that even significant disruptions in export-oriented sectors are unlikely to pose a systemic risk to the banking system.

Sector-Specific Impacts

While the overall impact is expected to be limited, some sectors are likely to face sharper challenges. CS Setty, chairman of State Bank of India, noted that four to five sectors may experience more pronounced effects. However, he reassured that these do not pose a systemic risk to the banking system due to limited exposures.

The tariffs are set to affect approximately 13% of India's merchandise exports to the US. The most vulnerable sectors include:

• Electrical machinery
• Gems & jewellery
• Textiles
• Machinery & mechanical appliances
• Agricultural products

Among these, the gems and jewellery sector carries the largest US exposure, with exports valued at about $10.00 billion.

Monitoring and Risk Management

Banks are not taking the situation lightly, despite the overall optimistic outlook. Pralay Mondal, managing director of CSB Bank, stated that the bank is closely monitoring affected customers, particularly those with more than 10% exposure to US business.

Scale of Impact

The United States accounts for a significant portion of India's export market, representing 18% or $80.00 billion of India's merchandise exports. Of this, $55.00 billion worth of shipments are impacted by the new tariffs.

Banking Services to Exporters

Indian banks provide crucial financial support to exporters through various credit facilities:

• Working capital loans
• Pre-shipment credit for raw materials and production
• Post-shipment credit to ease cash flow gaps

While these services remain important, the limited overall exposure to export credit helps insulate the banking sector from potential shocks.

Conclusion

Despite the challenges posed by the US tariffs, particularly to specific export-oriented sectors, the Indian banking industry appears well-positioned to weather the storm. The minimal exposure to export credit, combined with proactive monitoring and risk management strategies, suggests that credit growth and asset quality in the banking sector are likely to remain largely unaffected. However, banks will continue to closely watch developments, particularly in the most vulnerable sectors, to ensure timely responses to any emerging risks.