Indian banks are unprepared to respond to the climate crisis, particularly when it comes to incorporating climate-related financial risks into routine decision making and strategising, despite the Reserve Bank of India (RBI) incentivising bank lending towards green initiatives and projects, according to a recent report by Climate Risk Horizons.
Among the banks, the public sector banks (PSBs) are lagging far behind the private banks in terms of addressing the risks, the report observed.
The study looked at 34 top scheduled commercial banks (in terms of market cap) in India. It has revealed that hardly any bank has an exclusion policy that prohibits lending for the construction of new coal power plants or the extension of an existing one. Exclusion policy prohibits banks from financing certain sectors.
Banks have been analysed on 10 parameters including coal policy, green finance, and exclusion policy.
According to the report, no PSB has managed to be on the top of the list in terms of preparedness to tackle climate-related challenges.
Among banks, State Bank of India (SBI) holds the sixth position on the list. “None of the banks has undertaken forward-looking assessments like climate-related scenario analyses or climate stress testing to gauge the resiliency of their portfolios,” said the report.
YES Bank has topped the list with its policy, considering the parameters of the study. “It is the only bank in India that has started to measure its attributable Category 15 (investment) emissions for its project finance and corporate loans. So far, it has undertaken this in the electricity generation sector only. YES Bank has used the PCAF carbon accounting methodology to calculate financed emissions in the electricity sector for the year 2020,” the report noted.
The study lists reasons for the failure of the Indian financial sector to respond to climate change issues. They include lack of public disclosure and transparency, absence of an appropriate framework by the RBI for banks to identify, assess and manage climate-related risk, and absence of a well-framed coal-exclusion and human rights policy.
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