India’s Financial Conditions Tighten in March Amid West Asia Conflict: Crisil

India witnessed a notable tightening in financial conditions in March 2026, driven largely by escalating geopolitical tensions in West Asia. According to Crisil, global risk aversion led to sharp foreign portfolio investor outflows and heightened volatility in domestic markets.

The period also saw currency depreciation, rising sovereign bond yields, and tighter systemic liquidity conditions. These factors together pushed India’s financial indicators below historical comfort levels.

Crisil Financial Conditions Index Slips Below Comfort Zone

Crisil’s Financial Conditions Index declined to -1.5 in March from 0 in February. This marked the first occasion since May 2022 that the index fell below its defined comfort band of 1 standard deviation from the long‑period average.

The index also hit its weakest level since the outbreak of the Covid‑19 pandemic. Crisil noted that although the index remained negative for 10 of the past 12 months, the March decline was sharper and more broad‑based.

Record FPI Outflows Pressure Markets

Foreign portfolio investors recorded net outflows of USD 13.6 billion in March, the highest monthly level since the pandemic. This reversed net inflows of USD 4.2 billion recorded in February.

The equity segment alone saw a record outflow of USD 12.7 billion during the month. For FY26, FPIs have net sold USD 16.6 billion, compared with a net inflow of USD 2.7 billion in the previous fiscal year.

Rupee Weakens and Bond Yields Firm

The Indian rupee posted an average monthly decline of 2.2% in March, marking its steepest fall since October 2022. Currency weakness was accompanied by a rise in benchmark bond yields amid higher crude oil prices and fiscal concerns.

The 10‑year government securities yield rose to 7.02% by March‑end, up 36 basis points from February. This marked the first time the yield crossed the 7% level since July 2024.

Liquidity Conditions and Domestic Credit Trends

Domestic liquidity also tightened due to large tax outflows during the month. Despite this, some real‑sector indicators remained supportive, according to Crisil.

Bank credit growth accelerated to 13.8% as of March 15, compared with 11% a year earlier, led by services and personal loans. Lending rates for auto and housing loans remained broadly stable at 8.95% and 8.35%, while deposit rates stayed unchanged at 6.29%.

Read More: India Slips to Sixth-Largest Economy.

Conclusion

Crisil’s analysis shows that India’s financial markets have been more sensitive to global volatility than underlying economic indicators so far. Market conditions in March 2026 reflected stress from external shocks rather than domestic demand weakness.

The Reserve Bank of India responded by deploying tools such as open market operations and foreign exchange measures. While near‑term financial conditions tightened, select domestic indicators continued to provide stability.

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