Trump’s tariffs have prompted several American buyers of Indian exports, especially textiles, to either delay the shipment or cancel them altogether, leaving Indian MSME units with unsold inventory, pending payments and facing a liquidity squeeze, multiple industry sources have told Moneycontrol.
This has resulted in delayed payments to banks, exceeding 90 days in some cases, thus causing certain exporters’ accounts to be classified as non-performing assets while many others are at risk of facing the NPA tag, sources directly aware of the matter said.
“This issue began around August as an offshoot of the recent US tariffs. Many buyers have backed out since goods are now flowing from countries with relatively lower import duties. In several cases, exporters had finished goods ready for dispatch, but buyers didn’t pick them up, so they did not receive payments and, in turn, couldn’t repay their banks,” one source with direct knowledge of the issue said.
As per the Reserve Bank of India, a loan or advance is classified as a NPA when interest or principal payments are overdue for more than 90 days, in case of a term loan. These norms also apply to other forms of credit such as overdrafts and trade bills.
The US administration had doubled tariffs on most Indian goods to 50 percent from August 27, dealing a major blow to labour-intensive sectors such as textiles, leather, as well as gems and jewellery.
India has been negotiating a trade deal with the United States in an attempt to lower these levies.
“Banks are becoming more conservative and cautious because of American tariffs. They are possibly concerned about whether small exporters will receive their full payments or be able to clear their inventories,” another source said.
New Delhi-based think tank Global Trade Research Initiative’s (GTRI) founder Ajay Srivastava said that while RBI allows exporters up to nine months to realise payments from foreign buyers, lenders are declaring small exporters’ accounts as NPA after just 90 days of loan default, even though many shipments are unpaid due to US importers cancelling or delaying orders after the steep tariffs.
“Small firms that borrowed to buy raw materials are now trapped, their goods unsold, payments stuck, and credit lines frozen,” Srivastava added.
Textile Trouble
The worst hit by the liquidity crisis are textile exporters, where about 70 percent of units are MSMEs.
“What has happened is that many accounts have turned into NPAs. In the textile sector, there are very few large players. Even if the US issue gets resolved, those that have become NPAs will still need support from the government, as they will continue to struggle,” Another source aware of the matter said.
On November 11, US President Trump had said that the US would reduce tariffs on India “at some point,” without sharing a timeline, while confirming that Washington and New Delhi are working towards finalising the trade deal.
The problem for textile exporters is acute, given that apparel exports haven't seen much diversification unlike other impacted sectors such as marine products.
Barclays, in a report on November 11 said, “this sector is likely to experience more pain if alternative markets are not found, given the sizeable exposure to the US. Similarly, exports of plastics and leather too show flattish growth and little diversification.”
Between July to September, India’s apparel exports fell 14.8 percent compared to April to June 2025.
India’s overall exports to the US in September fell 21 percent versus August, and nearly 12 percent from a year ago to $5.4 billion. Exports of cotton garments and related accessories as a share in India’s shipments to the US fell 25 percent from a year ago and 34 percent versus August.
India’s textile exports to US worth nearly $11 billion is facing a near embargo following President Trump’s punitive levies.
Hoping for Government Support
Industry associations had approached the Ministry of Finance and the Reserve Bank of India back in September seeking relief, though no action has been taken yet, the first source said.
“Goods are not being lifted because of higher tariffs. We have requested the RBI to grant exporters dealing with the US market an extension till March 2026 from the 90-day NPA classification period. We conveyed this to the central bank in September, as well as to the Finance Ministry, and we expect a positive move since it doesn’t involve any fiscal cost,” the source added.
GTRI’s Srivastava said the Centre must act urgently and direct banks to align the loan-repayment window with the nine-month forex realisation period, and reinstate the Interest Equalisation Scheme to ease the interest burden on MSME exporters.
Some exporters are also seeking support similar to the Emergency Credit Line Guarantee Scheme (ECLGS), a government-backed initiative that provides additional working capital to businesses - particularly MSMEs - through guaranteed bank loans.
The Centre is expected to unveil the proposed Export Promotion Mission (EPM), first announced in the 2025-26 Budget later in November, after Cabinet approval. The mission will focus on access to finance, and offer limited interest subvention for small exporters - particularly via NBFCs - while steering clear of traditional or direct subsidy measures, Moneycontrol had reported earlier.
However, for now, hopes of lower tariffs may mean little to small exporters already under financial strain.
“Once banks withdraw support, factories can’t keep running,” one industry source warned, reminding that timely intervention by the Centre remains crucial.
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