The Reserve Bank of India (RBI) has asked banks to provide complete information about their direct and indirect investments and risks in West Asia. In fact, due to the Iran war, there has been a stir in the bond market worth about 2.5 trillion dollars around the world and the energy supply chain has also been affected. This area is also the largest remittance (money coming from abroad) area for India.
According to bankers, RBI wants to understand where there may be risks. Such as Indian companies operating in West Asia, companies doing more import-export there, and retail exposure like home loans to NRI customers. A senior official of a private bank said that the direct exposure of banks may be less, but many companies are highly dependent on the business there. Such information does not usually come in the regular reporting to RBI, but in uncertain times like these, this data is necessary.
Bankers believe that based on this information, RBI can take relief measures in the coming months if needed, although the situation is constantly changing. An official of a government bank said that the effect of LPG shortage has started becoming visible. Important sectors like fertilizers may also be affected. The ceramic industry in Morbi, Gujarat has had to stop work for some time. Although this will not have an immediate impact on banks, there may be pressure on the balance sheet in the first quarter of the next financial year.
Inflation will increase due to oil
Bankers say that imported inflation may increase in transport, logistics, hotels and other sectors. The position of big companies is still strong, but the biggest impact will be on small and medium industries (MSME). Another bank official said that if the situation remains like this for a long time, RBI may have to take steps like moratorium (relief in loan payments) or emergency credit line.
Money from Gulf is important for India
Gulf countries are the largest remittance giving markets for India. Of the total remittances of $119 billion received by India in FY24, about 38% came from GCC countries, of which UAE alone accounted for about one-sixth. This money plays a big role in strengthening India’s urban real estate and household spending.
Threat to exports also
According to exporters, if geopolitical tensions and logistics problems continue, India’s exports may suffer a blow of up to $8-10 billion. Orders from West Asia are being canceled and uncertainty regarding delivery is increasing. At present RBI is trying to maintain sufficient cash in the banking system and prevent the rupee from falling too much. But if the crisis drags on, the central bank may have to take bigger steps.