Mumbai: Several banks including State Bank of India, Axis Bank, ICICI Bank and HDFC Bank have taken the lead in funding green projects even as the Reserve Bank of India comes up with norms for lenders to disclose their actions on climate risk.
RBI has given a glide path for adopting detailed disclosures from FY25 onwards. The central bank sees a need for a better, consistent and comparable disclosure framework for lenders, as inadequate information about climate-related financial risks can lead to the mispricing of assets and misallocation of capital.
“The draft guidelines from RBI would have an overarching impact on the entire risk framework of regulated entities,” said Ajay Sirikonda, partner and leader, financial services risk management, at EY India. “It would need banks to stand up to the climate risk framework ground-up across governance, risk measurement and analytics. The implementation would need a coordinated effort across risk, finance and credit functions and enhanced data requirements on the counterparties of a regulated entity.”
The country’s largest lender State Bank of India has adopted a target of achieving carbon neutral status by 2030. SBI has ESG criteria to rate borrowers with exposure of ₹100 crore for listed and ₹500 crore in the unlisted space.
Most banks have launched a few loan products to tap the opportunities from climate change. A few banks have also launched green deposits to scale up lending to environment-friendly businesses.
Axis Bank has ESG-aligned commitments and set an incremental financing budget of ₹30,000 crore under wholesale banking to sectors with social and environmental outcomes, by FY26. Of this, it has achieved incremental exposure of ₹20,400 crore as of March 2023. The bank is scaling down exposure to carbon-intensive sectors, according to information on its website.
HDFC Bank has set a target of carbon neutrality by FY32 and is integrating stringent ESG assessments into credit policies and financing renewable energy projects. The bank is not funding new manufacturing units that produce or consume ozone-depleting substances and increasing lending to greener themes, according to the information on its website. When issuing credit facilities, the bank is engaging with the largest corporate borrowers to understand their ESG strategies and transition plans for managing climate risks.
ICICI Bank has developed sector-specific checklists to facilitate the assessment of ESG and climate-related physical and transition risks that a borrower in sectors like power, transportation, cement, steel and others could be exposed to.
Federal Bank has stated the target to grow the green financing book to ₹13,000 crore by 2025 from ₹3,222 crore as of March 31, 2023, and has introduced green deposits, which will be deployed to financing renewable energy, green building, smart agriculture and water or waste management projects among others, according to Crisil Ratings report. The bank has achieved 1.8 million tonnes of carbon dioxide reduction through financing such proposals in FY23, Crisil said.
RBI in an earlier report in 2022, had said that climate change would require “intensive capital mobilisation”. India needs $17.77 trillion to help them transition to a net-zero economy by 2060, according to the report.
