Govt Mulls Scheme to Protect Small Firms from US Tariff Heat, Indian Banks Weighs Sectoral Risks

Narendra Modi-led government is mulling to provide credit guarantees for loans overdue up to 90 days to small businesses and exporters amid higher tariffs imposed by the President Donald Trump-led US administration. The Ministry of Finance has proposed to extend 10-15% credit guarantees to banks in exchange for advancing loans to small businesses with turnover up to Rs 500 crore, Reuters reported. 

These businesses fall under the special mention accounts (SMA) category of the RBI. Loans that haven’t been recovered for 0-90 days fall under RBI’s SMA 0-2 category. However, these aren’t considered as non-performing assets. 

The government will reportedly allocate about Rs 40bn for extending guarantees to banks. The scheme is particularly for companies that are under pressure due to external factors “beyond their control”, Reuters reported, citing an official source. According to the government’s projection, nearly 55% of its merchandise exports to the US will be hit by Trump’s tariff.

Apart from this, the government is also considering a scheme that would offer term loans for small exporters and would be supported by a government guarantee of a maximum of 70-75%. 

The development comes after Trump doubled tariffs on India-manufactured items, bringing the total tariff to 50%. 

How Indian Banks Are Assessing Tariff Impact? 

On the other hand, banks too have started to examine their portfolios to calculate potential risks in various sectors based on the extent of tariffs levied. According to their assessment, small and medium-sized companies in the textile and jewellery industry are expected to face the most heat. 

Additionally, Indian banks have increased scrutiny of new loan applications from exporters, especially their exposure to the US market, Bloomberg reported. Some banks are considering loan renewals for exporters more prone to tariff risks. Additionally, as the risk is still being assessed and trade talks are still going on between the countries, some export orders have been put on hold.