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Mint
2 days ago
- Business
- Mint
Trump's punishing tariffs to deepen the slump in one large corner of Indian banking
Mumbai: Indian banks have low exposure to the sectors in the direct line of US President Donald Trump's tariffs. Yet, as trade disruption ripples through the economy, they may not escape a further slowing in corporate loans. Sectors including textiles, jewellery, apparel, seafood, machinery and mechanical appliances, chemicals, and auto components are expected to bear the brunt of the 50% tariffs on Indian goods entering the US. Direct lending by top banks such as State Bank of India, ICICI Bank and HDFC Bank to these industries is estimated to be about 10% of the overall loans, limiting the impact on lenders. What is concerning is the second-order hit. There are three primary reasons behind concerns about a potential slowdown in corporate credit growth on account of tariffs, according to analysts at Fitch group company CreditSights. 'First, we expect banks to be more cautious to lend to export-oriented companies, particularly in sectors heavily reliant on US demand, as the 50% tariff would have a significant impact on their businesses," Lim Ze Hao, analyst, financials at CreditSights, told Mint. It is likely that export orders are put on hold or even scrapped as US buyers seek cheaper alternatives from countries with lower tariffs, he said. Second, with the high tariff rate now and some uncertainty over where the tariff rate will eventually settle, exporters and manufacturing firms are likely inclined to pause expansion plans, resulting in reduced demand for bank loans. According to Ze Hao, finally, the 50% tariff rate will also have a moderate drag on India's GDP growth. 'Slower GDP growth typically translates into slower overall system loan growth, as businesses become more conservative about expanding operations because of slower demand, and consumers will also be more cautious about making major purchases." India's growth rate is estimated to decline by 20-30 basis points as US President Donald Trump imposes tariffs on trading partners to fulfil his election promise of bringing back jobs to the US. India faces one of the highest levies, at 50%, including 25% for buying Russian energy. Indian conglomerates have already flagged uncertainties emanating from tariffs. Corporate credit slump Reliance Industries, in its annual report, warned that 'continuing geopolitical and tariff-related uncertainties may affect trade flows and demand‑supply balance" for its oil-to-chemicals business that encompasses transportation fuels, and polyesters, among others. JSW Steel said in its annual report that 'the policy uncertainty is adversely affecting business and consumer confidence". Demand for corporate loans wasn't strong even before Trump started using tariffs as a negotiating stick. Indian banks have been waiting for corporates to borrow more. A recovery in credit demand has been impeded by the companies' reluctance to embark on new capital expenditure and their use of internal accruals, instead of bank loans, to fund projects. Bank loans to industries—micro, small, medium, and large—stood at ₹39.3 trillion at end-June, up 5.5% on year. Yet, the growth has slowed down from 8.1% seen in the previous year. The segment accounted for 21.4% of the overall non-food credit of banks in June, down from 22.1% in the same period of the previous financial year. Non-food credit excludes loans to the Food Corporation of India. A Mint analysis of cash holdings of 285 BSE-listed firms, excluding banking, financial services and insurance companies, showed a 12% year-on-year rise to ₹5.09 trillion in FY25. However, new project announcements—a proxy for capital expenditure—fell 5% in FY25, following a 3% contraction in FY24, Mint reported on 6 July, citing data from the Centre for Monitoring Indian Economy (CMIE). Lenders still optimistic Banks are hopeful that corporate loan demand will recover.C.S. Setty, chairman, State Bank of India (SBI), said on 8 August that corporate loan demand is expected to be at least 10% in the December quarter of the current financial corporate loan book grew 5.7% year-on-year, down from 15.9% a year earlier. The state-owned lender's total domestic loan book expanded 11.1% in the June quarter versus 15.6% a year earlier. Sashidhar Jagdishan, chief executive of HDFC Bank, told analysts on 19 July that the bank is 'not seeing anything great on the capital, private capex side as yet". However, the private lender 'shall surely participate in across all our segments, whether it is rural, whether it is retail, whether it is MSME and whether it is corporate as well". But it's not just that the demand for corporate loans has slowed down. 'There is a general demand slowdown, whether it is consumption in general or demand for corporate loans," said Anil Gupta, senior vice-president and group head of financial sector ratings, Icra Ltd. 'Banks would be ready to fund but in an uncertain environment, loan growth may remain tepid in the near term." According to Gupta, exporters may be in a wait-and-watch mode, given the uncertainty on tariffs and possible additional costs, which may reduce demand for working capital loans. As far as term loans are concerned, he said, clarity on demand revival may revive private capital expenditure.
New Indian Express
5 days ago
- Business
- New Indian Express
US tariffs to not hit bank's asset quality but corporate loan demand: Report
MUMBAI: Even though the 50% US tariffs will push up the credit cost for banks, it will not have any impact on the asset quality of lenders given the minimal exposure to the affected sectors, but if not talked down to a reasonable level, it will have secondary impact in terms of more slowdown in credit demand from corporates which has already been muted for some time now, says a report. CreditSights, an arm of Fitch Ratings, sees 'greater second order implications (from the higher 50% tariffs imposed by the US on Indian goods) for banks in terms of a slowdown in corporate loan demand, which was already subdued in the June quarter, and dampened sentiment towards future investments. 'While credit costs will undeniably be higher as a result of the tariffs, we anticipate a manageable asset quality impact on the banks under our coverage, given their relatively limited exposure to these sectors at less than 10% of their total outstanding fund-based and non-fund based exposures in Q1,' the agency said.
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Business Standard
5 days ago
- Business
- Business Standard
US tariff hike could pressure India's economy and banks, says CreditSights
India and the US have held five rounds of trade negotiations, with the sixth round scheduled later this month in India Rahul Goreja New Delhi Tariffs imposed by United States (US) President Donald Trump could weaken India's economic outlook, with pressure on key export industries likely to spill over into the banking sector, according to Fitch-owned research firm CreditSights, as reported by The Economic Times. Context Last week, the Trump administration announced an additional 25 per cent duty on Indian exports involving the import of Russian oil, effective August 27. This follows a prior 25 per cent tariff on Indian imports, raising the total duty to 50 per cent. Brazil is the only other country facing a similar tariff under the new US measures. Limited direct exposure, but sectoral pain ahead CreditSights noted that India's direct export exposure to the US is limited—about 2 per cent of gross domestic product—suggesting the broader impact could be 'manageable' due to the economy's reliance on domestic consumption and capital investment. However, several export-dependent sectors could come under pressure due to their reliance on the US market. These include: Textiles Jewellery Apparel Seafood Machinery and mechanical appliances Chemicals Auto components Banking sector implications The report also cited CreditSights' analysis (as of June 2025), which found Indian banks' exposure to these sectors to be under 10 per cent, indicating limited direct risk. However, banks could still face 'second-order' impacts, such as: A rise in credit costs, even if asset quality remains stable A likely slowdown in corporate loan demand, which was already subdued in Q1FY26 A possible decline in investor sentiment towards future investments These developments could weigh on credit growth and bank earnings, the firm said, as quoted by The Economic Times. Policy response in the works A trade pact between the two countries could help reduce the duties. India and the US have held five rounds of trade negotiations, with the sixth round scheduled later this month in India. Additionally, the commerce and industry ministry has firmed up support schemes worth approximately ₹25,000 crore under the Export Promotion Mission for a six-year period, according to a recent Business Standard report. The proposal has been submitted to the finance ministry for approval. Once cleared, the schemes will be rolled out after Cabinet approval, two people aware of the matter said.
Business Recorder
5 days ago
- Business
- Business Recorder
Indian rupee to cling to recovery before long weekend featuring Trump-Putin meet
MUMBAI: The Indian rupee is expected to open largely unchanged on Thursday, holding on to the last session's unexpected recovery, with traders awaiting the outcome of a key meeting between U.S. President Donald Trump and Russian President Vladimir Putin. The 1-month non-deliverable forward indicated the rupee will open in the 87.44-87.46 range versus the U.S. dollar, flat from Wednesday's level of 87.44. The local currency had its best day in more than a month on Wednesday, thanks to a softer dollar and position adjustments. 'The recovery yesterday was against the trend and caught a few by surprise,' a senior banker at a private bank said. 'Today should be quiet with a mild upside bias (on dollar/rupee),' he added. 'Most interbank desks are in wait-and-watch mode with positions light heading into a potentially risk-filled weekend.' Indian financial markets are shut on Friday, when Trump and Putin are scheduled to meet in Alaska to negotiate an end to the war in Ukraine. For India, the meeting holds added significance after Trump criticised its purchase of Russian oil and imposed an extra 25% tariff on its goods effective August 27, doubling the rate to 50% - the highest U.S. tariff on a country alongside Brazil. 'At a 50% tariff rate, several Indian industries would face significant headwinds, particularly those for which the U.S. is their largest export market,' said Lim Ze Hao, an analyst at CreditSights. On Wednesday, Trump threatened 'severe consequences' if Putin did not agree to peace in Ukraine, while adding that a second meeting, possibly involving the Ukrainian president, could follow swiftly. A conciliatory outcome could help calm jitters and support the rupee, while a combative outcome may renew pressure on the currency by triggering equity flows and heightening concerns over U.S. trade policy towards India. Key indicators: One-month non-deliverable rupee forward at 87.58; onshore one-month forward premium at 11 paise Dollar index at 97.72 Brent crude futures up 0.5% at $65.9 per barrel Ten-year U.S. note yield at 4.23% As per NSDL data, foreign investors sold a net $302.1 million worth of Indian shares on August 12 NSDL data shows foreign investors sold a net $76.5 million worth of Indian bonds on August 12
Economic Times
6 days ago
- Business
- Economic Times
Trump tariff blow set to ripple through India's economy and banks: Fitch's CreditSights
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads India's economy is bracing for a hit after the US announced it will double tariffs on Indian exports, a move that could push growth down and leave several key industries facing serious strain, according to Fitch-owned CreditSights . While the direct export exposure to the US is modest, the higher trade barriers are expected to ripple through sectors where America is a dominant market, and banks could also see an indirect drag on credit Trump administration last Wednesday imposed an additional 25% tariff on Indian exports to the US, in retaliation for New Delhi's continued imports of Russian crude oil. This new measure will come into force on August 27 and will push the overall tariff rate to 50%, as it is added on top of an existing 25% levy. CreditSights said this would make India subject to the highest US tariff rate currently in effect, a position shared only with described the overall blow to the economy as 'manageable' given that exports to the US make up roughly 2% of India's GDP, and that domestic private consumption and capital investment remain the main growth drivers. It cited BMI, its sister company, which is projecting GDP growth of 6.0% in FY26 and 5.6% in FY27 under the present 25% tariff rate. If the full 50% rate takes effect, BMI expects GDP growth to fall by a further 0.2 percentage points in FY26 and 0.4 percentage points in FY27. The research firm also said there is still a possibility of negotiations that could bring the tariff rate down, noting that other countries have seen such outcomes in the a prolonged 50% tariff regime could inflict severe damage on industries heavily dependent on US demand. CreditSights highlighted textiles, jewellery, apparel, seafood, machinery and mechanical appliances, chemicals, and auto components as sectors likely to face significant headwinds. In each of these areas, the US is the largest export market for Indian producers, and the higher duties could erode competitiveness and squeeze Indian banks, the direct risk from these sectors appears limited. CreditSights' analysis of financial data as of June 30, 2025, shows that the combined outstanding fund-based and non-fund-based exposure of the banks under its coverage to these industries is below 10% of total exposure. Furthermore, some of the most exposed product categories — such as auto parts, seafood, and machinery and mechanical appliances — are sub-segments of broader categories like vehicles, food, and engineering, where the banks' exposure is more the impact on banks may be felt more through what CreditSights called 'second order' effects. The firm expects credit costs to rise, even if asset quality remains broadly manageable. It warned that the bigger issue could be a slowdown in corporate loan demand, which was already weak in the first quarter of FY26, and a dent in investor sentiment towards future investments in India. Both trends could restrain credit growth and weigh on banks' earnings less than two weeks before the higher tariffs are set to take effect, the potential for last-minute talks offers some hope to exporters and investors. But if the measures stand, sectors with deep reliance on US buyers will need to navigate a difficult adjustment, and banks may find themselves grappling with a slower pipeline of new lending, even as the broader economy continues to lean on domestic consumption and investment to drive growth.
