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Jun 01, 2026
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West Asia heat may soon scorch banks' books
The drawn-out West Asia conflict could cast a shadow on Indian banks' balance sheets, with some senior bankers telling ET they are preparing for asset quality stress from the second quarter onward.
They said fuel price hikes will erode disposable incomes of retail borrowers, while rising input costs risk compressing corporate margins.
While the books of banks remain clean for now, the inflationary lag effect makes the second quarter asset quality a critical monitorable for the sector.
"The impact of the West Asia crisis on fuel prices, inflation and rupee depreciation will certainly affect multiple industries-SMEs (small and medium enterprises), large corporates as well as small borrowers," Paritosh Kashyap, executive director of Kotak Mahindra Bank, told ET. "In Q2, all of this impact will be visible in the financials of those companies."
Kashyap flagged SMEs as the most vulnerable. "SMEs will be squeezed from both ends-they may not be able to pass on cost increases to their anchor corporates, while raw material, supply chain and input costs are all rising simultaneously," he said.
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