Banks and NBFCs have begun to tighten credit filters by reassessing salaried incomes and halting disbursements to migrant workers in Tiruppur, Tamil Nadu’s third-largest credit market with ₹67,900 crore in outstanding bank credit. The tightening comes as the country’s largest knitwear export hub faces a severe financial strain, with the 50% US tariff hitting export volumes and squeezing already thin margins.
“While collections were holding up well in Oct/Nov ’25, lenders have tightened credit filters out of caution,” ICICI Securities said in its latest report. The report was based on interactions with over 10 banks, NBFCs and small finance banks, along with 8–10 borrowers, including large exporters, transporters and raw material suppliers.
Lenders Recalibrate Risk
Lenders are now considering only 75% of cash salary income for FOIR ((Fixed Obligations to Income Ratio) calculations, compared with 100% earlier. For the self-employed, FOIR is being applied on 50% of taxable income against 65% earlier. Lenders have also temporarily stopped disbursements to migrant workers. Tiruppur’s garment industry employs an estimated 600,000 workers across numerous units.
Tiruppur is the third-largest credit market in Tamil Nadu, with outstanding bank credit of ₹67,900 crore as of September 2025. ICICI Securities noted that disbursements to the region will likely be affected in the second half of FY26 due to cautionary lending. As of September 2025, Equitas Small Finance Bank, Aptus Value Housing, Five Star Business Finance and Shriram Finance each had over 20% of their exposure in Tamil Nadu.
Tariffs Force Market Pivot
Tiruppur produces textiles worth ₹72,000 crore, with more than 60% catering to exports. The US accounts for a fifth of these exports at about ₹15,000 crore. It was hit by the US tariff, which comprises a 25% reciprocal duty and an additional 25% penalty linked to India’s purchases of Russian oil.
While higher tariffs initially derailed export momentum, the situation is stabilising as exporters pivot to markets such as France, Italy and Spain, or route shipments through Vietnam and the UAE. The tariff impact has led to some job losses, particularly in units focused on US exports. However, workers are finding alternative jobs quickly, albeit with marginal pay cuts, resulting in no meaningful impact on cash flows so far, the report said.
India’s knitwear capital employs around 10 lakh workers — 60% of them women — with a large migrant workforce. Six out of 10 workers are migrants, mainly from Uttar Pradesh and Bihar.
The report further said, typical customers for NBFCs and SFBs are small traders and shop owners, whose cash flows depend heavily on the local economy. While the local economy has seen a mild disruption, borrowers are showing resilience by cutting discretionary spending. The only segment showing signs of stress is migrant labourers, who are largely contracted and therefore face higher job losses. “But lenders have limited exposure to this borrower class,” it added.