MENA <> India Corridors 
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India is weighing an INR 200 bn (USD 2.1 bn) credit support plan to support small businesses in sectors affected by the war, Hindu Businessline reports. The plan will target segments facing immediate stress, including MSMEs and the aviation sector, where route disruptions and rising fuel costs are affecting operations.
The structure: The plan would have the government provide sovereign assurances to banks on loans extended to affected businesses, covering up to 90% of the credit in case of default. The assurances are expected to remain in place for up to four years and would be routed through a framework used during the Covid-19 pandemic for a similar credit support program.
Why it matters: The move extends policy response from trade facilitation to credit support as disruption in the Middle East corridor begins to strain cashflows for Indian businesses. The region accounted for 13.3% of India’s exports and 16.4% of imports in April-January FY 2026 (pdf).
War risks for India’s financial sector
A prolonged war threatens India’s financial sector through multi-layered stress — extended supply chains, rising costs, and tighter liquidity, ANI News reports, citing analysis by EY.
From margins to cashflows: Second-order effects are expected to show up through margin cuts, delayed investments, and stretched working capital cycles. Rising input, freight, and ins. costs are beginning to squeeze on corporate profitability and cashflows.
Systemic spillovers: The emergence of third-order risks, such as supplier stress, payment delays, and selective job losses, could particularly impact retail borrowers and small-to-medium enterprises. These factors may heighten cashflow volatility and eventually manifest as asset-quality risks, EY notes.
Why it matters: With a large share of remittances linked to the Gulf, prolonged conflict could further weaken household cashflows, amplifying credit risks. Lenders are navigating supply shocks alongside AI-driven employment risks, especially in the services sector. The combined impact of income stress and inflation could strain household finances further, with loan stress likely to surface two quarters down the line.
