Most Indian Banks Still Haven't Identified How Much Of Their Portfolio Faces Climate Risk

Over two-thirds of banks in India have still not attempted to quantify the amount of their loan and investment portfolio that are susceptible to climate-related risks.

The survey conducted by the Reserve Bank of India's Sustainable Finance Group found that only 32% of banks under its regulation had quantified their climate-related risks. 41% plan to do so in the next 12 months, while 27% do not have any such plans.

RBI's survey highlights how underprepared Indian banks are to manage climate risks, and the need for lenders to start getting serious about the financial implications of a rapidly warming world. The survey included 34 banks, of which six were foreign banks with significant presence in India.

The report comes just months after the RBI acknowledged climate risks in its April monetary policy decision.

While two out of every three banks consider climate-related financial risks as a material threat to their business, only a handful have put in place an internal strategy for managing those risks.

Of the 28 Indian banks that were surveyed, only six were found to have put in place such a strategy, while 15 banks said they are in the process of developing one.

"The responses indicate that although banks have begun taking steps in the area of climate risk and sustainable finance, there remains a need for concerted effort and further action in this regard," the Sustainable Finance Group's report said.

Majority of the banks are also not mobilising new capital to scale up lending for green projects or set a target for incremental sustainable financing.

"Response to climate change would require intensive capital mobilisation," the survey report said. "Emerging markets need around $94.8 trillion to help them transition to a net-zero economy by 2060. India alone would need $17.77 trillion."

India's central bank has also floated an accompanying discussion paper on climate risk and sustainable finance aimed at its regulated entities. It is inviting comments from stakeholders by Sept. 30, 2022. The paper has proposed that regulated entities start disclosing emissions data from who they lend to, where they invest in and other intermediaries.

It also suggested annual disclosures that are aligned with the globally recognised Task Force on Climate-Related Financial Disclosures framework.

Further, it called for capacity building on the financial implications of climate change among bank employees and suggested that the Indian Banks' Association set up a working group for addressing this.