Mumbai: Several banks including State Bank of India, Axis Bank, ICICI Bank and HDFC Bank have taken the lead in financing 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 slippery slope to adopt detailed disclosures from FY25 onwards. The central bank sees a need for a better, consistent and comparable disclosure framework for lenders, as inadequate information on climate-related financial risks can lead to mispricing of assets and misallocation of capital.
“RBI’s draft guidelines would have a general impact on the entire risk framework of regulated entities,” said Ajay Sirikonda, partner and leader, financial services risk management, at EY India. “It would require banks to adhere to the climate risk framework based on governance, risk measurement and analysis. The implementation would require 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 assess borrowers with an exposure of ₹ 100 crore for listed and ₹ 500 crore in the unlisted space.
Most banks have launched a number of loan products to exploit the opportunities of climate change. Some banks have also launched green deposits to increase lending to green businesses.
Axis Bank has ESG aligned commitments and has set an incremental funding budget of ₹ 30,000 crore under wholesale banking to sectors with social and environmental outcomes, by FY26. From this, it has achieved an incremental exposure of ₹ 20,400 crore by March 2023. The bank is reducing 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 strict ESG assessments into credit policies and financing renewable energy projects. The bank does not finance new production units that produce or consume ozone-depleting substances and increases lending to greener issues, according to the information on its website. When issuing credit facilities, the bank collaborates with the largest corporate borrowers to understand their ESG strategies and transition plans to manage climate risks.
ICICI Bank has developed sector-specific checklists to facilitate the assessment of ESG and climate-related physical and transition risks to which a borrower in sectors such as power, transportation, cement, steel and others might be exposed.
Federal Bank has stated a target to grow the green finance book to ₹ 13,000 crore by 2025 from ₹ 3,222 crore on March 31, 2023, and introduced green deposits, which will be deployed to finance renewable energy, green building, smart agriculture and projects on water or waste among others, according to a Crisil Ratings report. Crisil said the bank achieved 1.8 million tonnes of carbon dioxide reduction by financing such proposals in FY23.
RBI in an earlier report in 2022, said climate change would require “intense capital mobilisation”. According to the report, India needs $17.77 trillion to help them transition to a net-zero economy by 2060.