Major Indian banks are increasing their focus on financing green projects at a time when there is a global push in favour of companies that adhere to the environmental, social and governance (ESG) framework. A fall in demand from thermal power companies has also helped banks to raise the amount they lend to renewable energy projects.
While data for most banks’ ESG-based financing is unavailable, State Bank of India (SBI) has already begun to make references to ESG in its analyst presentations. In its presentation for the January-March quarter of FY21, the bank said that it has financed 752 renewable energy projects and deployed Rs 31,918 crore in them, as on March 31, 2021. The amount deployed by SBI in renewable projects stood at Rs 25,915 crore as on March 31, 2020.
Part of the transition to renewable energy financing has happened by default because of poor loan demand from coal-based projects.
“Today, we hardly get any proposals in the thermal power segment. They are very few and far between. So most of our new lending in power is in the area of solar energy,” an executive with a large state-owned bank said on condition of anonymity.
A regulatory push in favour of clean energy has also played a role. In September 2020, the Reserve Bank of India (RBI) included loans to farmers for installation of solar power plants and loans for setting up Compressed BioGas plants as fresh categories eligible for finance under the priority sector. The regulator also doubled loan limits for renewable energy.
Apart from SBI, banks like Bank of Baroda and Union Bank of India have come up with products for financing solar energy based pump sets and solar home lighting systems for farmers and small businesses. SBI also offers interest rate concessions to borrowers buying electric vehicles (EVs).
Last month, the country’s largest private bank HDFC Bank said it is working to develop loan products for EVs and domestic solar rooftops as also evolving targets for raising its exposure to environment-friendly businesses. These products and targets are part of its 10-year timeline for achieving carbon neutrality.
“We are in the process of setting up a percentage target in terms of how much we will finance (to renewable energy companies and other sustainable businesses). Over the next few months or the year, we will share that,” Ashima Bhat, group head - CSR, business finance and strategy, administration, and infrastructure, HDFC Bank, said in a press conference in June.
At the same time, the ghosts of projects past continue to haunt Indian lenders. SBI’s exposure to the Adani Group’s Carmichael mine project in Australia has cost it the support of its investor Amundi. In November, the French asset manager had threatened to divest SBI’s green bonds due to the bank’s participation in the project. The project has been the subject of protests in Australia and come in for worldwide criticism for the threats it poses to the environment and Indigenous communities.
In 2014, SBI had drafted a memorandum of understanding (MoU) with the Adani Group to offer them a $one-billion loan for the Carmichael project. While the MoU was not executed that year with other global banks walking away from the project, there have been reports that SBI now plans to extend a Rs 5,000-crore facility for the Carmichael project. SBI has decided to take the line that financing thermal projects when required is important to achieving India’s growth aspirations, according to sources.
Earlier, SBI Chairman Dinesh Khara had taken a similar stand when asked if SBI would stop funding the water-guzzling practice of rice cultivation in Punjab. “Certainly not,” he said, in December 2020.
Khara emphasised that SBI will not freeze funding to specific sectors of the economy solely because they are ecologically unsustainable. “So if at all we are financing like that, we’ll also have to finance many green projects, which we are doing. The focus right now is carbon neutrality. Going forward, when we have alternate means available, then we can go beyond neutrality and be in a position to reduce carbon emissions,” he said.
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