US-Iran Crisis Looms: Banks Push RBI to Halt MSME Loan Payments Amid Economic Shockwaves
IBA Seeks Moratorium Amid Geopolitical Tensions
Indian banks, acting through the industry lobby group Indian Banks' Association (IBA), have formally requested the Reserve Bank of India (RBI) to approve a loan repayment moratorium for Micro, Small, and Medium Enterprises (MSMEs). This proposed relief is specifically designed to shield the vital MSME sector from the anticipated economic fallout stemming from the ongoing US-Iran conflict.The IBA’s proposal stipulates that the moratorium should operate on an 'opt-in' basis, meaning relief would be restricted only to those MSMEs that specifically apply for it. Senior bankers noted that the US-Iran war is poised to create a material impact on the demand for goods manufactured by MSMEs.
Assessing the Impact of Global Conflicts on MSMEs
Experts suggest that the conflict will trigger wide-ranging second- and third-order economic effects. These cascading impacts threaten to severely hurt the income streams and subsequent repayment capacity of small businesses across the country. Consequently, the IBA is advocating for this protective financial buffer from the central bank.The RBI has reportedly received the comprehensive proposal from the IBA and is expected to issue a decision shortly. In the interim, the central bank has already taken steps by extending export credit relief measures until June 30, helping exporters navigate supply chain delays linked to the geopolitical crisis.
Current Snapshot of MSME Credit and Asset Quality
Despite rising external pressures, the overall asset quality within the sector remains robust. Analysis shows that balance-level serious delinquencies (defined as 90-720 days past due) have declined to 1.87%, marking the lowest level recorded in the past five years.The financial scale of the sector underlines the necessity of protective measures. According to SIDBI's December MSME Pulse report, the consolidated MSME credit outstanding stood at Rs 67.6 lakh crore as of December 2025. This figure reflects a substantial 16% year-on-year growth rate.
Historical Precedents and Sector Growth Trajectory
The banking sources point to the experience of the pandemic-era moratorium, arguing that the previous measures did not lead to the significant spike in bad loans many had initially feared. Given the scale of the current US-Iran conflict, these sources believe a similar financial buffer for vulnerable businesses is strongly warranted now.The robust growth trajectory continues to underpin the sector. The credit outstanding of Rs 67.6 lakh crore is based on a five-year compound annual growth rate of 17%, driven primarily by sustained demand for secured business and property-backed loans.
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