States’ role in rare earths key to critical mineral self-sufficiency: SBI

As the rare earth magnets supply crisis continues to aggravate, the need for self-sufficiency in the critical mineral value chains has become more important, and active participation from state governments in the exploration and processing of rare earth will play a pivotal role in achieving the now much-needed self-sufficiency, according to a report by SBI Research.

The direct consumption of rare earth magnets is concentrated in the automotive, electrical, electronics, and machinery sectors. The report says the import of rare earth magnets averaged $249 million in the last four years. In FY25, magnet imports were $291 million, the highest in four years. Total imports of rare earth and compounds, on the other hand, averaged around $33 million per year in the last four years, with FY25 imports at $31.9 million. The analysis also showed that 50% of the domestic absorption of rare-earth permanent magnet is in transport equipment, which includes automotive catalytic converters.

According to SBI Research, domestic value-chain creation in critical minerals will require participation from the state government. The report highlights that many states, including Gujarat, Maharashtra, Madhya Pradesh, Karnataka, Uttar Pradesh and Rajasthan, have issued Notice Inviting Tenders (NIT) for the auction of an Exploration License. The Industrial Policy Resolution 2022 of the Odisha Government recognises rare-earth minerals-based value-added products as a priority sector under the policy. The Odisha Government has approved a ₹8000 crore titanium facility in Ganjam to boost high-tech manufacturing.

The Government of India launched the National Critical Minerals Mission (NCMM) in 2025 to establish a robust framework for achieving self-reliance in the critical minerals sector. India will invest in exploring and acquiring critical mineral assets in resource-rich countries. PSUs and private firms will be supported through funding, guidelines, and inter-ministerial coordination. Accordingly, critical minerals present an important business opportunity for banks that requires a focused policy and strategic direction within the banks.

Investments by PSUs are expected to be around ₹18,000 crore, between FY25 and FY31, according to the report. ₹3,000 crore has been earmarked for domestic critical mineral exploration by the National Mineral Exploration Trust (NMET), and the Geological Survey of India has earmarked an additional ₹4,000 crore. Furthermore, the NMET has earmarked an additional ₹1,600 crore for support for exploration activities outside India, and ₹4,000 crore for risk coverage for foreign sourcing. The Union Budget has also earmarked ₹500 crore for critical minerals processing parks, and another ₹500 crore for the stockpiling of critical minerals.

The report also highlighted that since rare earth is a critical mineral, disruption in the supply of rare earth can impact the financial exposure of banks to these sectors, as well as ancillary ones. However, the report states that vulnerability is also a function of the available inventory of rare earth elements, and disruption is not immediate or uniform across sectors.

The possible transmission mechanism to banks due to rare earth supply shock under aggravated scenario may include the elongation of working capital cycle due to accumulation of semi-processed inventory, idle capacity etc., volatility in demand due to output inoperability, the likely emergence of stress in both upstream and downstream sectors, the interlinkages from NBFC sector to banking sector, and the export or trade uncertainties for committed yet unfulfilled obligations; both funds as also non-funds based due to sudden restrictions. The latest RBI FSR acknowledges that external spillovers and intensifying geopolitical hostilities can impact the domestic financial system, the report adds.