DE-RISKING THE BOOKS

INDIAN BANKS ARE BEGINNING TO TAKE BABY STEPS TOWARDS ADDRESSING CLIMATE-RELATED FINANCIAL RISKS IN THEIR BOOKS. BUT THEY MUST PUT THEIR FOOT ON THE PEDAL AND ENHANCE PREPAREDNESS

- RICHA SHARMA

HOW PREPARED ARE Indian banks to tackle climate-related risks? Well, the journey has just begun with the generation of data of risks posed by climate change, and offerings like green bonds and green fixed deposits. Still, the bottom line is that banks need to hasten their actions to mitigate climate-related risks to their operations.

An assessment of 34 major Indian banks with a combined market capitalisation of ₹29.5 lakh crore in FY22 found that India’s public sector banks are more exposed to climate risk than their private rivals. That’s because they are major lenders to the energy (conventional), mining, and metal sectors. Climate Risk Horizons (CRH), a think tank working with financial institutions to prepare them for climate-related risks, released the biennial assessment in August 2023, the second in the series.

On a positive note, Indian banks have started prioritising lending to green projects through special products; some are measuring the emissions of projects they have financed, developing tools and assessment frameworks for climate risks in their portfolio, and considering a policy to exclude carbon-intensive projects.

But is that enough?

Rama Patel, Senior Director and Chief Ratings Officer at CRISIL ESG Ratings and Analytics Ltd, says banks are beginning to take steps to address climate change risks, and integrating them into operations will help banks contribute to building a more sustainable and resilient financial sector in India.

For their part, financial sector regulators, too, have made climate risk assessment a priority. The Reserve Bank of India (RBI) introduced a draft disclosure framework on Climate-related Financial Risks, 2024, in February that applies to all entities regulated by it.