Even before the full implementation of the 50% tariff imposed by the US on Indian exports, early signs of distress are already visible among some Indian exporters, particularly in the MSME space. According to bankers, companies who are heavily reliant on US exports are facing significant financial challenges.
Said a senior public sector banker, “Defaults on credit payments have begun from companies who export timber and steel to the US. While things aren’t very bad now, we are bracing ourselves for more such incidents.” However, bankers were in unison about providing support and repayment flexibility to help the companies.
Another senior official at a state-run bank said, “The current situation is fluid. Depending on the sector, the impact will be seen over the next 6 to 12 months.” Bankers have been particularly cautious about sectors such as shrimp, textiles, gems and jewellery, leather, pharma, and electronics. While pharma and electronics aren’t currently impacted, bankers are being vigilant, anticipating that further sanctions from the US could put additional pressure on Indian exports.
Early signs of distress and banking sector’s response
Bankers are seeing this as a challenge that may impact margins, profitability, and business models, ultimately reshaping how Indian corporates are able to diversify their businesses to ensure that they aren’t heavily reliant on a single country, said a senior banker with the private sector bank. He added that the textile sector is already undergoing some readjustments, including cost-cutting measures, which may result in job losses.
“The textile sector has built huge additional capacity and is therefore a worrisome area. We may even see them compromising on margins and shifting focus to the local (Indian) market,” said a banker who believes the government may step in to protect manufacturers, especially MSMEs. Unlike large corporates, MSMEs lack the resources to make quick adjustments.
Strategic adjustments and government’s role
According to CareEdge Ratings, Indian textile and apparel exports in CY26 to US is expected to witness a significant decline, potentially reducing overall textile exports by 9-10% to $30 billion, with profit before interest, lease, depreciation and tax (PBILDT) to decline by 300-500 basis points.
“Many buyers have stocked up on products before the additional 25% tariff came into effect, which could provide some temporary relief,” said a senior PSU banker who believes that, for the time being, it could mitigate the stress in some sectors.
Meanwhile the Reserve Bank of India’s Governor, Sanjay Malhotra, on Monday, speaking at the FIBAC 2025 event in Mumbai, assured that the central bank will step in with additional policy measures to support the growth of the economy, including those sectors impacted by tariffs. “We will not be found wanting in our job,” said Malhotra, emphasising that while anchoring inflation has been one of the key priorities, the central bank has “not lost sight of growth amid uncertainties.”
