Impact of US Tariffs on Bank Lending Strategy

Indian banks are likely to re-evaluate their corporate and SME lending plans after the US imposed 25% tariffs on Indian exports. The move creates uncertainty for export-linked borrowers, delaying recovery in credit demand.

Credit Demand Already Weak

Slowing Growth in FY26

Corporate and SME credit growth slowed to 6–9% YoY, down from 12–15% in late 2024. Lenders like Federal Bank and Bank of Baroda note no panic yet, but emphasize close monitoring.

Rise of Cheaper Funding

With the RBI cutting rates by 100 bps, corporates are shifting to bond and ECB markets for cheaper funds, affecting loan demand and bank margins.

Also Read: Trump’s Tariff May Dent Export Margins

Pressure on Bank Margins

According to CareEdge Ratings, public sector banks saw a 26 bps drop in NIMs, while private banks reported an 18 bps decline in Q1 FY26. Sluggish demand and bond market competition are key drivers.

Long-Term Strategy Shift?

A DBS report notes that tariffs are part of a broader fiscal strategy, not just trade policy. Banks may need to adapt lending portfolios amid evolving global trade risks.

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