Israel-Iran tensions: Indian banks see no immediate impact for now

No Israeli or Iranian bank has any branches in India.

The emerging conflict between Israel and Iran in the Middle-East poses no immediate challenges for the Indian banking sector, industry experts said. They further said that some of the payments between entities in the region and banks in India could be delayed due to the conflict.

“The Indian corporates are doing well and till now there are no chances of any risks. Also, there is no risk on the credit side either for the banks. But some near-time challenges like delay in payments and cash flow could be seen due to the conflict,” said Sanjay Agarwal, Senior Director, BFSI, CareEdge.

The State Bank of India is the only Indian bank to have a branch in Israel and a representative office in Iran.

Samir Bahl, Chief Executive Officer, Investment Banking, Anand Rathi Advisors said that other than the impact on oil price, no major impact could be felt on Indian banks and economy.

“The escalation in the potential conflict between Iran and Israel is a serious development and will likely adversely impact oil pricing. However, the Indian economy’s strong fundamentals and growth trajectory remain firmly in place over the long term,” Bahl said.

Also read: Iran-Israel tensions: Expected crude oil spike could escalate India’s borrowing costs, say experts

Earlier, money market experts highlighted that the conflict could escalate the Indian government’s borrowing costs as bond yields may spike, triggered by a likely jump in global crude oil prices. The 10-year benchmark bond yield, which opened flat on April 15, is likely to breach the 7.20 percent mark in the coming days, they said.

Indian banks in Israel and Iran

The State Bank of India (SBI) is the only Indian bank to have a branch in Israel and a representative office in Iran.

According to the annual report of the bank for financial year 2022-23, the total business volume through overseas branches, sub-offices, other offices and subsidiaries was at $74 billion (approx Rs 7,400 crore).

The net profit of the overseas subsidiaries, representative offices, joint ventures, associates, managed exchange companies and investments of SBI was at $334 million (approx Rs 34 crore) for FY23.

Israeli and Iranian banks in India

No Israeli bank has any branches in India but in 2020, Tata Consultancy Services (TCS) was chosen by the Ministry of Finance to launch Israel's first fully digital bank.

In 2019, Union minister Nitin Gadkari said that India has allowed an Iranian bank to open a branch in Mumbai, a move which was seen as circumventing US trade and investment sanctions as India builds a strategic port in the West Asian country. Iran’s Pasargad Bank has received the necessary clearances to open its branch in Mumbai but is yet to open the branch.

Also read: Israel-Iran conflict – What it means for Indian markets

And in 2019, IDBI Bank opened three processing centers to facilitate trade with Iran. The bank opened processing cells in Delhi, Ahmedabad and Kolkata in addition to an existing centre in Mumbai.

Israel-Iran crisis

On April 1, two Iranian generals, along with the country’s paramilitary Revolutionary Guards, were killed in the Syrian capital in a strike on the Iranian consular building and the Iranian authorities blamed the attack on Israel.

Following this, on April 13, Iran fired over 300 drones and missiles at Israel, calling the attack a retaliation to a strike on its consulate in Syria. Tel Aviv has said it would retaliate and extract the price from Iran and has urged tighter sanctions against Tehran.