SBI pauses new Gulf lending as Iran crisis drags on,

India’s largest state-owned bank has paused new Gulf lending as the Iran crisis plays out — a sharper turn than the broader “Indian banks are cautious” framing in the Economic Times today and a signal for the MENA-India banking corridor. State Bank of India (SBI) Chairman CS Setty said the lender will take no new GCC business “until we get some clarity on the situation,” while continuing to run its existing book. Punjab National Bank (PNB) is doing the same.

Why does it matter? The corridor is tilting. Gulf sovereign capital is still flowing aggressively into Indian assets, with the UAE’s Abu Dhabi Investment Authority and Mubadala Investment and Saudi Arabia’s Public Investment Fund continuing to anchor the region's global investment strategy. Indian bank capital going the other way is not. The Iran crisis is widening that asymmetry — Gulf-to-India remains a green light, while India-to-Gulf is now at risk.

How exposed is SBI? Its overseas loan book is INR 7.42 tn — about 15% of its INR 49.32 tn asset base. The UAE and Bahrain together account for 14% of overseas loans, well behind the US (26%) and the UK (18%). Not enough to break the bank if the conflict drags on — but enough to be worth protecting.

PNB is in the same posture and has moved officials from Dubai back to India as part of business-continuity planning. The lender runs its Gulf book through the Dubai International Finance Center and handles international business from its Gift City branch in Gujarat. Indian Overseas Bank, which has no Middle East operations, says it's not directly affected but is seeing some overseas business slowdown.

The macro question is the more interesting one. SBI Research's own numbers (pdf) say every USD 10 / bbl increase in crude widens India’s current account deficit by 30-35 bps, lifts inflation by 35-40 bps, and cuts GDP growth by 20-25 bps. That’s the channel that matters — not the direct loan-book hit. India’s domestic economy is still doing the heavy lifting, with real GDP growth projected at around 7.2% in 4Q FY 2026 and 7.5% for the full year, before moderating to 6.6% in FY 2027 as geopolitical risk feeds through.

What's next: Setty flagged that a conflict could last five to six months and would start weighing on domestic macro conditions. SBI has not flagged any immediate asset-quality impact on its existing Gulf book.

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