Indian banks are increasing their scrutiny of new loan applications from exporters, asking about exposure to the American market and contingency plans for dealing with US President Donald Trump's steep tariffs.
Bloomberg spoke with officials from five major Indian lenders, who said they are assessing the financial impact of the punitive levies on their clients, particularly those in the export-dependent textile, gem, and jewelry sectors. They all spoke under the condition of anonymity because the information is not public.
Key Highlights
- Trump doubles U.S. tariffs on Indian exports to 50%, triggering order cancellations and order uncertainty among exporters.
- Indian banks are bracing for stress on exporter loans, amid disruptions in earnings and trade flows.
Lenders are asking borrowers more specific questions when reviewing new export financing proposals or renewing existing funding. They also stated that some export orders are on hold while trade talks between New Delhi and Washington continue.
The move comes after Trump doubled tariffs on India-made goods in a single week, with the additional levy taking effect on August 27, bringing the total tariff to 50 percent. Businesses are concerned that this will severely disrupt shipments to the US by making Indian exports prohibitively expensive.
The industries that have been hit the hardest—and are also among the most labor-intensive—have asked the Narendra Modi-led government to implement measures to alleviate the pain caused by the new trade barriers.
Indian lenders are concerned that the trade war will cause new balance-sheet stress and rekindle painful memories of the country's distressed debt problem from a few years ago.
Some of their main questions concern cash flows, business continuity plans, and burden-sharing efforts with other stakeholders, such as distributors.
Some banks have begun to identify the most vulnerable clients internally by examining financial parameters such as the percentage of revenue derived from the United States. They added that exposure to the highest-risk borrowers as a result of US levies is not currently a cause for concern.
Rollback hopes
The majority of the exporters with whom these bankers have spoken about the trade issue expressed hope for a partial rollback of US tariffs.
Indian exporters have already begun rethinking their strategies to deal with the unexpected levies, including expanding into new markets, shifting output from India to other countries, and exploring acquisitions in the United States.
Some cash-rich exporters can tolerate losses for a year or two, but they are concerned about long-term business loss to rivals in Bangladesh and Pakistan, according to a source. These neighboring countries pay lower US levies than India.
Piyush Goyal, India's Commerce Minister, told Parliament late last month that the federal government is working with exporters to assess the impact of tariffs and will take "all necessary steps to secure and advance our national interest."
The Gem and Jewellery Export Promotion Council is requesting assistance, such as financial relief and duty drawbacks.
Other requests include a six-month delay in interest on working capital facilities, 90-day pre-shipment and penalty-free loan payment extensions, and a moratorium on downward credit rating revisions, according to Kirit Bhansali, chairman of the trade group, in a statement issued on August 7.
Also Read: Trump's Tariff Policy Poses Challenge to RBI's Interest Rate Outlook
Rating actions
Rating agencies have not yet taken any action regarding exporters' creditworthiness. Borrowing companies, on the other hand, are concerned and are looking for government assistance to avoid a drop in ratings, which would raise funding costs.
Other Indian business representatives want more liquidity in the banking system to offset the impact of US tariffs.
To keep businesses afloat, India's government should push "banks to lower interest rates," according to Rahul Mehta, director of Mumbai-based Creative Garments Pvt.
The removal of import duties on raw materials should also help, according to Mehta, who advocates for a government response similar to Covid-era emergency policies.
