Banks go green, cut exposure to non-renewable entities

Lenders not keen on funding thermal plants due to higher carbon emissions

- PIYUSH SHUKLA RAGHAVENDRA KAMATH

BANKS ARE SHARPLY reducing their exposure to the non-renewable sector entities as the scrutiny over climate-related risks in loan portfolios and role of economic, social and governance (ESG) in lending decisions increase, senior bankers said.

According to the sectoral deployment of credit data released by the Reserve Bank of India (RBI), banks' credit to petroleum, coal products and nuclear fuels de-grew 13% year on-year (YoY) and 1% month-on month (MoM) to ₹1.31 trillion in January, a trend that is being increasingly witnessed since July. Credit to mining and quarrying, including coal, de-grew 7% YoY and 5% MOM to ₹54,123 crore.

While credit to non-renewable sources is moderating, the same to renewable energy sector is growing, although on a lower base. For instance, credit to renewable energy sources rose 17% YoY and 11% MOM to 5,404 crore in January, RBI's data showed.

"As a lender, we have already started evaluating borrowers based on their ESG rating. Though of course, it is not impacting our decision in terms of interest rate for borrowers. But, nevertheless, we are also sharing their ESG rating with borrowers just to make them aware where do they stand," State Bank of India chairman Dinesh Khara said earlier this month.

"We are required to report Scope 3 emission to Sebi, and I think there is an increasing awareness being built in the ecosystem, which will eventually start impacting the pricing part also. So, we are on the right direction," he said.