Indian banks are increasing scrutiny of new loan applications from exporters by asking about exposure to the American market and contingency plans for coping with US President Donald Trump’s steep tariffs, according to people familiar with the matter.
Bloomberg News spoke to officials at five large Indian lenders who said they’re assessing the financial ramifications of the punitive levies on their clients, especially those in the export-dependent textile, gem and jewellery sectors. They all spoke on the condition of anonymity, as the information is not public.
Lenders are asking borrowers more pointed questions when vetting new export financing proposals or renewals of such funding, the people said. They added that some export orders are being put on hold while trade negotiations play out between New Delhi and Washington.
The move comes after Trump doubled tariffs on India-made items in the space of a week, with the additional levy effective by Aug 27, bringing the cumulative tariff to 50 per cent. Businesses worry that this will severely disrupt shipments to the US by making Indian exports prohibitively expensive.
The industries hit hardest – they are also among the most labour-intensive – have asked the Narendra Modi-led government to introduce measures to reduce the pain from the new trade barriers.
Indian lenders are concerned the trade war will create new balance sheet stress and stoke painful memories of the country’s distressed debt problem a few years back.
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Some of their key queries, according to the people, pertain to 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 checking on financial parameters such as the percentage of revenue coming from the US, said two people Bloomberg News spoke to. The exposure to the highest-risk borrowers due to US levies isn’t currently that worrisome, they added.
Most of the exporters these bankers have spoken to about the trade issue said they’re hopeful for a partial rollback of the US tariffs.
Indian exporters have already started redrawing strategies to deal with the unexpected levies through measures such as expanding in other markets, shifting output from India to elsewhere and exploring acquisitions in the US.
Some cash-rich exporters can sustain losses for a year or two but they worry about longer-term loss of business to rivals in Bangladesh and Pakistan, a person said. These neighbouring nations face lower US levies than India.
India’s Commerce Minister Piyush Goyal told parliament late last month that the federal government is engaging 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 seeking support such as finance relief and duty drawbacks.
Other requests include deferment of interest on working capital facilities by six months, 90-day pre-shipment and penalty-free loan payment extensions and a freeze on downward revisions of credit ratings, Kirit Bhansali, the trade group’s chairman, said in an Aug 7 statement.
Rating companies haven’t taken any action yet on exporters’ creditworthiness. However, borrowing companies are worried and seeking government assistance to prevent any slip in ratings that will spike the cost of funding.
Other Indian business representatives want to see more liquidity in the banking system to offset damage from the US tariffs.
India’s government should push “banks to lower the rate of interest” to keep businesses afloat, said Rahul Mehta, director at Mumbai-based Creative Garments.
Removal of import duties on raw materials should also help, Mehta said, calling for a government response akin to Covid-era emergency policies. BLOOMBERG
