China’s Rare Earth Ban To Impact India’s Industries, Banks: SBI Report

“The top sectors impacted by China’s ban include transport equipment, basic metals, machinery, construction and electrical and electronics. Both domestic production and exports will be impacted,” said the report titled China’s ban on Rare Earth and Permanent Magnets: Implications for India.

"Rare earth being a critical mineral, disruption in supply of rare earth can impact the financial exposure of banks to these sectors as also ancillary ones. However, it should be kept in mind vulnerability is also a function of available inventory of rare earth and disruption
is not immediate uniformly across sectors."

The report said that China’s dominance over India’s rare earth imports, valued at around $ 33 million annually over the past four years and peaking at $ 31.9 million in FY25, puts the Indian economy
at risk amid growing geopolitical tensions. Imports of rare earth magnets, widely used in electric vehicles, wind turbines, and electronics, surged to $ 291 million in FY25, the highest in four
years.

The possible transmission mechanism to banks due to rare earth supply shock under aggravated scenario may include--Elongation of working capital cycle due to accumulation of semi-processed inventory, idle capacity etc, volatility in demand due to output inoperability, likely emergence of stress in both upstream and downstream sectors.

It also warned that banks and NBFCs may face rising trade and export uncertainties as a result.
The report called for a coordinated approach across ministries, public sector undertakings, private firms, and financial institutions to mitigate strategic dependencies and strengthen long-term economic resilience.

Thirty minerals have been identified as critical for India’s economic security by Government of India.

The report noted that the government of India has launched the National Critical Mineral Mission (NCMM) in 2025 to establish a robust framework for self-reliance in the critical mineral sector with a
total fund allocation of Rs 18000 crore for the period 2025-31.

“The active participation of state governments in encouraging rare earth exploration and processing can contribute to regional economic development and self-sufficiency in critical mineral value chains,” it said.