India-Pakistan Tension: How Border Conflict Could Affect Banks
India-Pakistan Conflict Sparks Banking Sector Concern
As India and Pakistan engage in a rapidly escalating conflict, banks across India are closely monitoring the situation due to the substantial depositor base they hold in border states. The epicenter of the crisis is Jammu & Kashmir, which shares a 3,323 km border with Pakistan, including the volatile Line of Control (LoC).
Border States: Banking Hubs at Risk
Jammu & Kashmir, Punjab, Rajasthan, Gujarat, and Himachal Pradesh collectively account for a significant chunk of India’s bank deposits and advances. According to the latest Reserve Bank of India (RBI) data as of March 2024, these states represent 12.81 percent of the nation’s total bank deposits, amounting to Rs 26.21 lakh crore, and 13.41 percent of all advances, standing at Rs 22.13 lakh crore.
Jammu & Kashmir: Ground Zero for Concern
Jammu & Kashmir, at the heart of the conflict, holds deposits of Rs 1.49 lakh crore, representing 0.73 percent of the country’s deposits, and advances of Rs 73,879 crore, which is 0.45 percent of the national figure. Public sector giants like State Bank of India and cooperative banks such as the Jammu and Kashmir State Co-operative Bank serve both urban centers like Srinagar and Jammu, as well as rural areas.
Punjab: A State Always in the Crosshairs
Punjab, sharing a 547-km border with Pakistan’s Punjab province, has a history of being a target. It holds 3 percent of the country’s deposits (over Rs 6.14 lakh crore) and 3.24 percent of loans (Rs 5.35 lakh crore). Major banks like Punjab National Bank and regional lenders like Punjab Gramin Bank provide credit to farmers and small industries in key cities like Ludhiana and Jalandhar. Several border districts, including Amritsar, Ferozepur, and Pathankot, remain on high alert due to frequent attacks from Pakistan.
Rajasthan, Gujarat, and Himachal Pradesh: Caught in the Ripple Effect
Rajasthan, with its 1,035 km desert border, holds over Rs 6.98 lakh crore (3.41 percent) in deposits and Rs 6.25 lakh crore (3.79 percent) in advances. Cooperative banks like the Rajasthan State Co-operative Bank play a vital role in rural credit. Gujarat, with a 508-km border, is a financial powerhouse among these states, holding over Rs 10.8 lakh crore (5.27 percent) in deposits and Rs 9.45 lakh crore (5.73 percent) in advances. Banks like Gujarat State Co-operative Bank and private lenders like HDFC Bank fuel growth in major cities like Ahmedabad, Surat, and the Kutch regions. Himachal Pradesh, while not directly bordering Pakistan, is indirectly affected by the conflict due to its proximity to J&K and Punjab. It holds 0.4 percent of the country’s deposits (Rs 81,840 crore) and 0.2 percent of advances (Rs 32,736 crore). State-owned lenders, along with banks like the Himachal Pradesh Gramin Bank and Himachal Pradesh State Co-operative Bank, cater to rural and semi-urban areas.
Recent Escalation: Heightened Tensions and Impact
Recently, the conflict has escalated sharply. On May 8 night, India successfully thwarted a Pakistani military attempt to target military stations in Jammu, Pathankot, Udhampur, and other locations using missiles and drones. This follows India’s Operation Sindoor on May 7, where nine terror bases in Pakistan and Pakistan-occupied Kashmir were targeted, two weeks after a deadly terror attack in Kashmir’s Pahalgam area on April 22.
Looking Ahead: Uncertainty and Vigilance
The banking sector remains watchful as the situation unfolds. The impact on these border states, their economies, and the banking system as a whole remains unclear. Heightened tensions and potential disruptions could impact customer activity, loan repayments, and overall financial stability in the region.
