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Investing.com -- The sharp rise in U.S. tariffs on Indian exports will likely have a limited effect on the country’s lenders, as direct loan exposure to affected sectors is relatively small and government support could cushion the blow, Jefferies analysts said.
The U.S. has lifted tariffs to 50% on about $48 billion of Indian goods, nearly half of total exports to America, covering sectors such as textiles, gems and jewelry, leather, marine products, engineering and chemicals. Auto components will also face a 25% duty.
Jefferies estimated that bank lending to these tariff-hit industries makes up only 4-6% of overall credit, suggesting a manageable direct impact.
Larger private banks have less exposure than smaller peers and state-run lenders.
While the measures could indirectly weigh on banks through slower growth in retail loans, since the targeted industries are employment-intensive, management conversations point to “concern, not fear,” the brokerage said.
Jefferies forecast that prolonged tariffs could shave about 100 basis points off GDP growth, which in turn may slow overall credit growth.
Government and central bank support may soften the shock. New Delhi could provide subsidies, interest-rate subventions, or credit-guaranteed loans to affected exporters, while also working to redirect trade toward partners such as the UAE, UK and Australia.
The Reserve Bank of India may ease liquidity and regulations, and a cut in GST could lower inflation, opening the door to rate reductions, the note said.
Jefferies highlighted larger private banks including HDFC Bank, Axis, ICICI Bank, SBI and Kotak as better positioned, alongside lenders like Bajaj Finance, Cholamandalam and Shriram. Gold-financiers such as Muthoot may be insulated, while NBFCs with riskier SME exposure face greater vulnerability.