MUMBAI: Even though the 50% US tariffs will push up the credit cost for banks, it will not have any impact on the asset quality of lenders given the minimal exposure to the affected sectors, but if not talked down to a reasonable level, it will have secondary impact in terms of more slowdown in credit demand from corporates which has already been muted for some time now, says a report.
CreditSights, an arm of Fitch Ratings, sees “greater second order implications (from the higher 50% tariffs imposed by the US on Indian goods) for banks in terms of a slowdown in corporate loan demand, which was already subdued in the June quarter, and dampened sentiment towards future investments.
“While credit costs will undeniably be higher as a result of the tariffs, we anticipate a manageable asset quality impact on the banks under our coverage, given their relatively limited exposure to these sectors at less than 10% of their total outstanding fund-based and non-fund based exposures in Q1,” the agency said.
The Trump administration had on August 6 announced an additional 25% tariff on Indian exports, as a punitive duty for New Delhi’s continued imports of Russian crude, effectively doubling the tariff to 50% from August 27.
“We see a manageable blow to the economy given a modest export exposure to the US (around 2% of GDP) and private consumption and capital investments being its main growth engines. As a result we forecast GDP growth to inch down to 6% in FY26 and 5.6% in FY27 based on the 25% tariff rate that is currently in place, and a 0.2 bps and 0.4 bps reduction in growth in FY26 and FY27 respectively should the 50% rate come into effect,” the report said.
At a 50% tariffs several industries-- textiles, jewellery, apparel, seafood, machinery and mechanical appliances, chemicals, and auto components--would face significant headwinds, particularly those for which the US is their largest export market.