Banks keep a close watch on border states as India-Pakistan conflict escalates

The epicentre of the crisis is Jammu & Kashmir, which shares a 3,323 km border with Pakistan, including the volatile Line of Control (LoC)

As India repulses waves of Pakistani drone attacks on its border areas and military bases in a rapidly widening conflict, the banking sector will be tracking the developments closely as it has a sizable depositor base in these frontier states.

Jammu & Kashmir (J&K), Punjab, Rajasthan, Gujarat, and Himachal Pradesh together accounted for 12.81 percent of India’s total bank deposits at Rs 26.21 lakh crore and 13.41 percent of all advances at Rs 22.13 lakh crore as of March 2024, latest Reserve Bank of India (RBI) data shows.

The union territory of Jammu and Kashmir, which is at the centre of the conflict, shares a 3,323 km frontier with Pakistan, including the volatile Line of Control (LoC).

J&K’s banks have deposits of Rs 1.49 lakh crore, which account for 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 such as State Bank of India and cooperative banks such as the Jammu and Kashmir State Co-operative Bank serve urban hubs such as Srinagar and Jammu and rural areas.

In most of J&K and other states, bank deposits are preferred by most, even as some investors are turning to mutual funds.

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Punjab, which shares a 547-km border with Pakistan’s Punjab province, is another state that has always been in the crosshairs of Pakistan. The state has 3 percent of the country’s deposits at over Rs 6.14 lakh crore and 3.24 percent of loans at Rs 5.35 lakh crore (3.24 percent).

Major banks such as Punjab National Bank and regional rural lenders like Punjab Gramin Bank facilitate credit for wheat and rice farmers and small industries in Ludhiana and Jalandhar.

Also read: Operation Sindoor: Army says multiple drone attacks from Pakistan effectively repulsed along western border

Several of the border districts such as Amritsar, Ferozepur and Pathankot have come under fire from Pakistan and remain on high alert.

Schools have been ordered shut and people advised to stay indoors, which can weigh on the local economy amid heightened tensions.

Rajasthan, with its 1,035 km desert border along Pakistan’s Sindh and Punjab provinces, holds deposits of over Rs 6.98 lakh crore (3.41 percent) and advances of Rs 6.25 lakh crore (3.79 percent).

Cooperative banks such as the Rajasthan State Co-operative Bank play a major role in rural credit.

Gujarat, which shared a 508-km border with Pakistan along the Sir Creek and Rann of Kutch, is the financial heavyweight among these states.

Its banks hold deposits of more than Rs 10.8 lakh crore (5.27 percent) and advances of Rs 9.45 lakh crore (5.73 percent).

Banks such as Gujarat State Co-operative Bank and private lenders such as HDFC Bank fuel growth in Ahmedabad, Surat, and the Kutch regions.

The state’s coastal and border areas are vulnerable to mischief from Pakistan.

Himachal Pradesh doesn’t share a direct border with  Pakistan but is drawn into the conflict’s orbit due to its proximity to J&K and Punjab. The hill state accounts for 0.4 percent of India’s deposits at Rs 81,840 crore and 0.2 percent advances at Rs 32,736 crore.

Along with state-owned lenders, banks like the Himachal Pradesh Gramin Bank and Himachal Pradesh State Co-operative Bank cater to rural and semi-urban areas.

On May 8 night, India thwarted Pakistan military's attempt to hit military stations in Jammu, Pathankot, Udhampur and some other locations with missiles and drones.

A day earlier, India launched Operation Sindoor and hitting nine terror bases in Pakistan and Pakistan-occupied Kashmir, two weeks after 26 people were killed in a terror strike in Kashmir’s Pahalgam area on April 22. Two of the terrorists were Pakistani citizens.