Tag: sbi

‘We are adopting a cluster approach to boost MSME credit’

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Top public sector lender State Bank of India says its Chennai Circle is one of the important business regions with its leadership in advances, and agri gold loans. R Radhakrishnan, who took charge as the Chief General Manager (CGM) of State Bank of India (SBI), Chennai Circle in June this year spoke to BusinessLine about the circle’s growth areas and expansion plans. Excerpts

How was the September 2021 quarter for Chennai Circle?

Chennai Circle’s performance was fairly good in Q2FY22. In terms of growth in deposits and advances, we have achieved 47% of our annual budget in deposits and 13% of our annual budget in advances.

Have collection efficiencies across segments reached pre-Covid levels in this region?

There has been significant reduction in slippages during Q2FY22 vis-à-vis Q1FY22. The slippages decreased by 73%. The NPA percentage has also improved from 2.91% as on June 30, 2021 to 2.25% as on September 30, 2021 which is below pre-Covid level. Collection efficiency in the SME sector has not yet reached pre-Covid level. Though all out efforts are being taken to revive units through restructuring and Covid related supports, SME units are struggling to recover from the losses incurred due to lock down, cancellation of orders and migration of labour.

You are a big player in the MSME segment and TN is also known for MSMEs. How big is the MSME portfolio and how has it grown in the past few years ?

Presently the Circle is having an SME Portfolio of ₹21,000 crore excluding our large & mid corporate portfolio of ₹58,061 crore. In total, we are having exposure of ₹80,000 crore in SME. Our MSME portfolio stands at ₹14,462 crore. We have exposure to manufacturing and retail trade in various sectors such as textiles, heavy commercial vehicles, auto components, automobiles, leather, fabrication, cement, sugar, paper, IT related services and safety matches.

The Tamil Nadu government recently announced MSME Policy 2021 and set a target to attract ₹2 trillion in new investments in the MSME sector by 2025 and achieve an annual growth of 15% in the manufacturing sector. We have also planned to increase our MSME portfolio by ₹3,756 crore by the end of March 2022. We are adopting a cluster approach to grow in each segment of the MSME spectrum. We have also launched Sanjeevani & Aarogya MSME loan products targeting the health sector.

What are some of the major growth areas for this circle?

The Circle has a total business portfolio of ₹3.08 trillion with ₹1.83 trillion in deposits and ₹1.25 trillion in advances. Its portfolio is almost equally distributed in SME, agri and retail segments. Home loan segment contributes to 38% of total advances. Some of the major growth areas for this Circle are retail loans, housing loans, gold loans, SHGs and MSME Loans.

How does Chennai circle compare with other zones of SBI?

Chennai Circle consists of 1,247 branches spread over the geographical area of Tamil Nadu & Pondicherry. Our branch share is 10.60%. Our deposit share is 18.20 % and advances share is 17.50 % among all the banks in this zone. We have a network of 5,348 ATM/ADWMs with a market share of 19%. Chennai Circle stands pan-India No.1 in aggregate advances & agri gold loans. It has the third highest portfolio in housing loans.

What are your business targets for this fiscal and how are you planning to achieve the same?

For FY 2021-22, we have planned to grow ₹10,386 crore in CASA deposits and ₹19,433 crore in total deposits. We have planned to grow our aggregate advances portfolio by ₹19,138 crore.

Could you also provide details on the branch expansion/ rationalisation plans?

Last financial year, we opened 22 branches including 10 SME branches. As on date, we have 2,742 Customer Service Points (CSPs) in Chennai Circle apart from 1,247 branches. We are planning to open 700 CSPs during this fiscal and 3 more branches to extend our services in unbanked areas.

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Protection to bankers: IBA knocks FinMin doors again

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The Indian Banks Association (IBA) has once again knocked the Finance Ministry’s door on the crucial aspect of protection to both retired and serving bankers post the now much talked about former SBI Chairman Pratip Chaudhuri’s arrest incident.

The Department of Financial Services has been requested by the IBA to extend protection to all serving and retired officers with the prior permission clause in line with the one already available for central government officials, sources in the banking industry said.

This is the second letter from the IBA, which had soon after Chaudhuri’s arrest on October 31 written to DFS seeking a new procedure to safeguard bankers’ against state-level authorities, including police in cases of loan defaults.

Also read: Bankers protest against Chaudhuri’s arrest, want FinMin to intervene

Now, IBA has said that the mechanism should involve prior permission clause in line with the GoI officers.

On October 31, Chaudhuri was arrested from his Delhi home by the Jaisalmer police for his alleged role in the Garh Rajwada hotel project in Jaisalmer. This project was financed — to the tune of ₹ 25 crore — by State Bank of India in 2007. This incomplete project was sold to Alchemist ARC in March 2014.

Chaudhuri has been a director at Alchemist ARC since his retirement in September 2013.

Soon after his arrest, several top level bankers called the decision unfortunate and sought protection of individuals by a legal framework so as to ensure that commercial decisions are taken without delays.

After a week in judicial custody, former SBI Chairman Pratip Chaudhuri got a bail in the Garh Rajwada hotel project case.

It may be recalled that protection of Section 197 of Criminal Procedure Code is already available to government servants, mandating prior sanction of concerned government before taking cognisance by any Court of offence allegedly committed by public servant in discharge of official duties. As per a Supreme Court judgment, same is not available to public sector undertaking employees.

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Towards a level playing field in ‘Business Correspondent’ model of banks

Banking & Finance

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The Reserve Bank of India (RBI) should rationalise the interchange fees for Aadhaar Enabled Payments System (AePS) transactions and also disincentivise Business Correspondents (BCs) for unfair business activities to generate commission, according to State Bank of India’s economic research report Ecowrap.

This can ensure a level playing field in the BC model followed by public sector banks (PSBs) and other banks.

AePS is a bank-led model that allows online interoperable financial inclusion transactions at point of sale/PoS (micro ATM) through the BC of any bank using Aadhaar authentication.

BCs are retail agents engaged by banks to provide banking services at locations other than a bank branch/ATM.

How to make BCs more viable

PSBs mostly follow ‘branch-led BC model’, while other banks follow ‘branch less/ micro ATM/kiosk application on mobile/corporate BC model’ for financial inclusion.

Three key facts

The report underscored three facts — more than 77 per cent Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts have been opened by PSBs; the number of BCs/customer service points (CSPs) of other banks largely outnumbered that of PSBs and, over the years, OFF-US transactions are increasing.

Data indicate that the share of AePS “OFF-US” transactions (where the card issuing bank and acquiring bank are different entities) in AePS increased from 4 per cent in September 2016 to 51 per cent in September 2021.

In AePS “ON-US” transaction, the card issuing bank and the acquiring bank are the same entity.

“Considering these facts, PSBs (that opened around 77 per cent of the PMJDY accounts) are now net payers of interchange fee. We estimate that the PSBs could be paying ₹600-700 crore per annum as interchange fee,” said Soumya Kanti Ghosh, Chief Economic Adviser, SBI.

He emphasised that since AePS works like a PoS, logically the ‘acquiring bank’ (the bank which has installed the PoS terminal at the merchant location) should pay the interchange fee to the ‘issuing bank’(the bank which has issued the card to the customer).

Alternatively, there could be rationalisation in interchange fee as there is no level playing field in infrastructure provided by all banks.

Holistic financial inclusion

With requisite savings, banks can further strengthen/upgrade their BC model and promote financial inclusion in a more holistic manner, the report said.

Currently, the account opening bank pays an interchange fee to the operator of the BC/ CSP when a customer makes a transaction at micro ATM that does not belong to the account opening bank (that is OFF-US transaction).

At present the interchange fee is 0.5 per cent of transaction amount (minimum ₹1 and maximum ₹15) for an OFF-US financial transaction and ₹5-7 for non-financial transaction.

The report noted that BCs convert AePS ON-US transactions of one set of bank customers to AePS OFF-US issuer transactions and also carry out multiple AePS ON-US and AePS OFF-US transactions on the primary bank application/software.

Women Business Correspondents: Agents of change in India’s financial inclusion

SBI’s economic research department cautioned that the ‘micro ATM/kiosk application on mobile’ model might also lead to several frauds as the mobile BCs introduce themselves as government persons and need biometric authentication to provide different types of subsidy.

PSBs, who are active in financial inclusion activities, have opened a large number of PMJDY accounts (out of 44 crore accounts, PSBs opened 34 crore accounts and non-PSBs 1.3 crore, rest RRBs) with minimal balance and thus incur recurring expenditure by way of servicing such customers, including issuance of free RuPay debit card, besides monthly remuneration for BC operations.

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DHFL recovery lifts PSU banks’ Q2 net profits, offsets Srei group account slip, BFSI News, ET BFSI

Banking & Finance

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Most top public sector banks have reported steady second-quarter earnings, with lower slippages as the economy opened up and COVID-19 cases fell.

State Bank of India reported a robust performance as it bravely fought off the COVID-19 impact and displayed remarkable resilience in asset quality performance.

India’s largest bank reported a steady quarter, with net earnings growing 67% YoY to Rs 7630 crore, aided by controlled provisions, as asset quality showed remarkable strength, despite the impact of the second Covid wave.

The bank has been reporting continued traction in earnings, led by controlled provisions. However, business trends remain modest, impacted by continued deleveraging by corporates. The bank has been able to maintain a strong control on restructured assets at 1.2% of loans, while the special mention account (SMA) pool declined sharply.

It created a family pension provision of Rs 7,420 crore, instead of amortizing it over five years, thus prudently deploying one-off gains from the DHFL recovery and tax refund. The bank has fully provided for its exposure towards the SREI group.

GNPA/NNPA ratios improved by 42 basis points /25bp quarter on quarter (QoQ) to 4.9%/1.5% as fresh slippage subsided to Rs 4180 crore. Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 6,690 crore (27bp of loans).

According to analysts, the slippage trajectory of the bank is likely to moderate further assuming there is no third Covid wave, while credit cost may undershoot the normal cyclical trends. The bank has a healthy PCR of 70% and holds unutilized Covid-related provisions of Rs 6200 crore.

Canara Bank

State-run Canara Bank reported a three-fold jump in its standalone net profit at Rs 1,333 crore in the quarter ended September, aided by lower bad loan provisioning, rise in non-interest income, and recovery from DHFL resolution. The lender had reported Rs 444 crore profit in the year-ago quarter.

“Despite moderate credit growth of 6% YoY and soft NIMs (Net interest margin), Canara Bank reported a strong beat on PAT versus our estimate, mainly helped by higher treasury income, contained provisions and cash recovery from DHFL,” said Emkay in a note.

Union Bank

Union Bank of India reported healthy earnings, supported by recovery from the DHFL resolution.

The bank reported a PAT of Rs 1530 crore, up 195% year on year, supported by higher recoveries from written-off accounts of Rs 1760 crore, including recovery of

Rs 1,650 crore from the resolution of the DHFL account.

Furthermore, fee income trends improved, while domestic margins declined; muted loan growth affected net interest income growth. On the other hand, asset quality performance was stable despite elevated slippage, largely led by Corporate – this includes slippage from SREI Infra (Rs 2,600 crore). However, higher write-offs and upgrades aided improvement in asset quality on a sequential basis. Moreover, it now carries provisions of 65% on SREI Infra (higher versus peers).

The SMA-2 book declined to 2.3% of loans (versus 3.7% of loans in first quarter of FY22). Thus, slippage would moderate from fiscal 2023 onwards, and credit costs are expected to come in at 2.2%/1.9% for FY22/FY23, according to analysts.

Punjab National Bank

Punjab National Bank (PNB) delivered a weak operating performance in the second quarter as the bank was impacted by a decline in net interest income with domestic margins contracting sharply by 36 basis points quarter on quarter, while net earnings grew 78% year on year, aided mainly by tax reversals. The total recovery from the DHFL resolution was Rs 1,270 crore and was predominantly utilised for making provisions for one large corporate account (SREI Infra). On the business front, loans/deposits grew 2% sequentially.

PNB reported a 78% YoY and 8% QoQ increase in PAT at Rs 1,110 crore aided mainly by tax reversals (Rs 340 crore) and controlled provisions (34% QoQ decline). However, PNB’s operating performance was weak with the PPoP declining 27% YoY due to a decline of 25% YoY in net interest income and domestic margins declining sharply by 36 bps QoQ to 2.45%.

On the asset quality front, slippages were elevated (~5.4% annualised) due to two large corporate accounts (Rs 3600 crore) which included slippage of Rs 2,800 crore from Srei Infra. However, higher recoveries and upgradations supported the bank’s asset quality with its GNPA/NNPA ratio declining by 70bp/35bp sequentially. PNB’s total restructured book (earlier Covid schemes) stood at 3.1% of loans, while total SMA overdue (Rs 5 crore) amounted to Rs 25,000 crore.

UCO Bank

UCO Bank’s net profit for July-September jumped 581.9% on year to Rs 210 crore on improvement in asset quality, lower overall provisions, and growth in other income. Sequentially, the net profit increased 101.7%. In the quarter ended September, provisions and contingencies excluding current tax, stood at Rs 1,020 crore, down 21.7% on year and largely unchanged on quarter. Provisions for tax were at Rs 100 crore, against a Rs 260 crore write-back last year. Provisions for non-performing assets stood at Rs 1,590 crore, up 54.6% on year and 88.9% on quarter.

The bank said it had identified two Kolkata-based accounts of the same group as non-performing assets during the quarter, post lifting of a legal stay on identifying them as bad loans. While UCO Bank didn’t name the account or group, it possibly referred to Srei Infrastructure Finance and Srei Equipment Finance.

The Srei twins are under the scanner after the Reserve Bank of India superseded their boards, citing corporate governance issues. UCO Bank said it had provided for these two stressed accounts as per regulatory norms. Despite this, UCO Bank’s gross non-performing asset ratio eased to 8.98% as on September 30 from 9.37% on Jun 30, and 11.62% a year ago.

The net non-performing asset ratio fell to 3.37% as on Sep 30 from 3.85% a quarter ago and 3.63% a year ago. The bank said that to guard against the impact of any future waves of Covid on its books, it was making an ad hoc provision of 2.5 bln rupees in July-September, taking the total provisions linked to Covid to Rs 750 crore as on September 30.



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Analysts bullish on SBI counter after strong Q2 earnings performance, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Analysts are showering price target upgrades on the counter of State Bank of India after the state-owned lender’s strong earnings performance for the quarter ended September.

Analysts have raised their price target on the stock by 5-23 per cent following the results announcement on November 3, while most of them also retained their “buy” calls on the scrip.

“SBI is still trading at temptingly low valuations and remains well positioned as a recovery play,” said brokerage firm Edelweiss Securities in a note.

SBI reported better-than-expected net profit, net interest income and asset quality for the reported quarter. The lender’s gross non-performing assets ratio eased to 4.9 per cent from 5.32 per cent in the previous quarter.

Incremental stress on the loan book also declined as slippages in SMA-1 and SMA-2 category shrank 40 per cent sequentially to Rs. 6,690 crore reflecting the improving health of the balance sheet. Analysts said that the lender is exiting the second wave of the pandemic with a stronger balance sheet that has set the stage for growth in the coming years.

Shares of SBI have risen 143 per cent over the past 12 months making it one of the best performing banking stocks on the Street. Much of those gains are on the assumption that lender will be a major beneficiary of the improvement in private capital expenditure going ahead and its own improving asset quality.

“From here on, loan growth will be the key driver of PPOP growth. We remain optimistic on the long term drivers driving profitability,” said brokerage firm Nomura India in a note.

While brokerage firm Edelweiss Securities suggested that SBI has set itself up for more rerating in valuation multiples with its Q2 earnings, much of that rerating will depend on how expectations on loan growth turn out.

For the reported quarter, the lender reported little over 6 per cent year-on-year growth in loans with retail and home loans providing for much of the growth. At the same time, the corporate loan book shrank nearly 4 per cent indicating that the corporate capex cycle was still some way away.

“We see risk-on gaining momentum and potential dwindling of social costs. A discount to private peers is nevertheless warranted on account of lower credit cost elasticity (low provisioning) and structural limitations,” said Edelweiss Securities.



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SBI chief, BFSI News, ET BFSI

Banking & Finance

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Mumbai: SBI chairman Dinesh Khara has said that the bank has full confidence in the judiciary and that former SBI chairman Pratip Chaudhury would be released unconditionally soon. He also said that the banking community, through the Indian Banks’ Association, has taken up the matter with the government.

“The arrest of Mr Chaudhury is extremely unfortunate. There have been several reactions in the public space of the banking community as well as previous chairmen. It appears that an opportunity was not given to him to be heard before the arrest. We have utmost faith in the country’s judicial system and are confident that he will be released unconditionally at the earliest,” Khara told reporters here on Wednesday.

Banking sources said that the complainant in the same case had filed a false FIR against the resolution professional (RP) who had been appointed to take charge at the defaulting company. This had resulted in a landmark judgment that said a case against the RP can be filed only with the Insolvency and Bankruptcy Board of India (IBBI).

Khara denied that there were any irregularities in the sale of the loan by SBI. “As far as SBI is concerned, we adhere to the best practices in corporate governance and there has been no irregularities in the instant case and the prescribed rules and process were followed by the bank in dealing with this account.” Khara indicated that the decision on the sale of the NPA was unlikely to have been taken by Chaudhury. “Issues of this magnitude are invariably dealt with at a local level and the top management of the bank, including the chairman, are not involved in decision making. We have got the structure in place and we are confident that people across the hierarchy can take decisions in such matters,” Khara said.

Banking sources said that the complainant in this case was politically connected. They said that it appeared to be a premeditated case as most of the higher courts are on vacation for Diwali.

Meanwhile, SBI sources said that the valuations mentioned in the order are irrelevant as the properties were not sold by the bank. They said that the bank had sanctioned a term loan of Rs 24 crore and a cash credit limit of Rs 1 crore was sanctioned in 2008 and the loan had to be restructured within a year itself. Despite restructuring, the loan turned into a non-performing asset in 2010. This prompted the bank to send a recall notice for Rs 34 crore in 2012 and a suit was filed in the debt recovery tribunal in 2013 for Rs 40 crore.

As the bank was not successful in attaching the property under the Securitisation Act, the loan was sold to Alchemist Asset Reconstruction Company (ARC) for Rs 25 crore in 2014. The ARC too could not recover the loan and finally invoked the IBC.

The promoters had filed an FIR against the RP, who was arrested. It was in this case that the landmark order was passed requiring complaints against the RP to be filed only with the IBBI. Banking sources said that both NCLAT and the Supreme Court have passed strictures against the promoters.



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SBI posts 67% rise in Q2 net to ₹7,627 crore

Banking & Finance

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Significant improvement in asset quality and lower loan-loss provisions helped State Bank of India  post highest-ever quarterly standalone net profit in the second quarter at ₹ 7,627 crore.

Resolution of the DHFL account, which allowed the  bank to write-back provisions amounting to ₹4,000 crore, also supported SBI’s bottomline.

The net profit in the second  quarter  ended September 30, 2021 was 67 per cent up year-on-year (yoy) vis-a-vis year-ago quarter’s ₹4,574 crore.

Slippages down

Slippages were about 52 per cent lower yoy at ₹4,176 crore in Q2FY22 against ₹15,666 crore in the first quarter (Q1FY22) ended June 30, 2021.

Dinesh Kumar Khara, Chairman, emphasised that the bank could pull back the first quarter’s retail segment slippages.

“This is the reason for the much lower slippages and also the accounts are performing well.

“Also, our ground level forces have also improved collections. Our collection efficiency stands at about 95 per cent,” he said.

The net interest income  was up about 11 per cent yoy to ₹31,184 crore (₹28,181.50 crore in the year-ago quarter).

Other income, including profit/loss on sale of assets, profit/loss on revaluation of investments (net), earnings from foreign exchange and derivative transactions, recoveries from accounts previously written off, dividend income, etc., declined about 4 per cent yoy to ₹8,208 crore (₹8,528 crore).

Loan-loss provisions declined 52 per cent yoy to ₹2,699 crore against ₹5,619 crore.

GNPA position improves

GNPA position improved to 4.90 per cent of gross advances as at September-end 2021 against 5.32 per cent in the preceding quarter.

Net NPAs position too improved to 1.52 per cent of net advances against 1.77 per cent in the preceding quarter.

As at September-end 2021,domestic advances increased about 5 per cent yoy to ₹ 21,56,055 crore. Foreign offices advances were up about 16 per cent yoy to ₹3,74,722 crore.

Within domestic advances, retail personal advances saw a 15 per cent yoy growth; agriculture (about 2 per cent) and SME (about 1 per cent). However, corporate advances de-grew about 4 per cent.

Khara attributed the muted scenario in corporate advances to working-capital limit utilisation continuing to be low.

“However, credit demand appears to be on the rise with increasing economic activities across India. Corporates too have started planning for future investments, which will create demand for credit going forward,” he said, adding that SBI will see an overall credit growth of 9-10 per cent in FY22.

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SBI, Bharti Airtel seen as top Muhurat session picks for 2021, BFSI News, ET BFSI

Personal Finance

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Mumbai, Stocks of State Bank of India as well as Bharti Airtel have topped the list of scrip that have been recommended as the top Muhurat session picks by leading brokerage houses.

According to Motilal Oswal Financial Services (MOFSL), in terms of technical and derivatives picks for Samvat 2078, the rollover of SBI stock has been intact at 93 per cent from the last 2 months which indicates longs are upright in the scrip with more than 10 per cent price increase in the October series.

“One can look for ‘Bull Call Spread‘ opportunity here by buying at Rs 510 call and selling at Rs 540 call of the November series at a net premium cost of around 10 points.”

Other top stock picks from MOFSL are Larsen & Toubro, Trent, and Bata.

For Samvat 2078, the brokerage house expects a boost coming to sectors such as travel and tourism, real estate, and ancillary industries.

“Equity markets had a historical journey in Samvat 2077, as it touched new life time highs with Nifty and Sensex surpassing 18,000 and 60,000 mark, respectively, for the first time in history.”

“The recent sprint (in Nifty) to 15,000 in Feb ’21 and 18,000 in Oct ’21, from pandemic lows of 7,600 in Mar ’20 – amid lockdowns and other health challenges – has been led by a benign global liquidity, containment of Covid-19 cases, significant pickup in the pace of vaccination, sharp recovery in corporate earnings and a market-friendly budget.”

Besides, HDFC Securities have recommended Bharti Airtel as a top pick this Muhurat trading session.

As per HDFC Securities: “Pricing competition with Reliance Jio, regulatory and technological changes and adverse currency movement are key risks faced by the company. However, strong market position in the domestic mobile and non-mobile segment, diversification across businesses, healthy operations in Africa, high financial flexibility makes Bharti Airtel attractive for investment.”

“We feel Investors can buy the stock at LTP and add on dips to Rs 623 for a target of Rs 810.”

Furthermore, the brokerage house said that last year before Diwali, India was grappling with the aftermath of the first Covid-19 wave.

“There were considerable uncertainties on how the pandemic will impact India and the globe. Stock markets recovered from a steep Covid-19 induced fall and benchmark Nifty was pushing near pre-Covid all-time highs of 12,000 levels. Last year’s Diwali picks were issued in such an uncertain environment.”

“From those turbulent times to this Diwali, the pendulum has swung the other way. Markets have rallied 50 per cent since last Diwali and many stocks have zoomed to new all-time highs.”

The brokerage house also recommended Alembic Pharma, Cadila Healthcare, Credit Access Grameen, Gujarat Gas, ICICI Bank, Infosys, and Mphasis.

The special Muhurat trading session, held every year on Diwali day, is considered to be auspicious for stock market trading.

The trading during the special session will commence from 6.15 p.m. and end at 7.15 p.m. on Thursday.

It is believed that the Muhurat trading on this day brings wealth and prosperity throughout the year.

This ritual has been observed for ages by the trading community.

The Indian equity market will be closed on Friday, November 5, to mark Diwali Balipratipada.

–IANS

rv/sn/vd



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As India pledges net-zero emissions, banks move to form common ESG framework, BFSI News, ET BFSI

Banking & Finance

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With India agreeing to achieve net-zero emissions by 2070, the onus is on banks to promote green finance. The Indian Banks’ Association is looking to create a common framework for environmental, social and governance (ESG) issues while carrying out credit assessment and include climate risk as part of their risk management policy, according to a report.

Banks have always been the backbone of India’s economic growth, and as the country pivots to sustainable growth, the banking sector will have to accelerate green lending, SBI Chairman Dinesh Khara had said earlier.

“A formal definition of green finance in India would enable more precise tracking of finance flows to the green sectors, which in turn would help design effective policy regulations and institutional mechanisms directed towards increasing both public and private investment in green sectors,” Khara had said.

Green finance definition

India’s green finance definition could be formed through a combination of adopting international practices, developing a set of principles for green economic activities and obtaining stakeholders’ views, he suggested.

“Unless banks are able to provide adequate credit to green projects and measure risk in their portfolio, the bank’s depositors and shareholders will continue to carry ESG (environmental, social and governance) risk that can erode returns.”

To support acceleration and green financing, he said, a number of structural changes will be needed in the traditional lending approach, including evaluation and certification of the green credentials of each project and understanding of the corporate road map to achieve net zero.

RBI‘s stance

The Reserve Bank of India also feels there is a need to mainstream green finance and devise ways for incorporating environmental impact into commercial lending decisions.

Addressing climate risk in the financial sector should be the joint responsibility of stakeholders as it would affect the resilience of the financial system in the long run, RBI Deputy Governor M Rajeshwar Rao said recently.

“As the risks and opportunities and financial impact arising from climate change vary across jurisdictions, this poses unique considerations for emerging economies like India. The challenge before us is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development,” Rao said.

He noted that the global understanding of the systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.

RBI’s efforts

The RBI has been talking about green finance for many years and has taken various steps towards it. It has pushed, on the lines of corporate social responsibility for private companies, the concept of ESG principles into financing aspects. In April, the RBI joined the Network for Greening the Financial System (NGFS) in April 2021.

The NGFS, launched in December 2017 at the Paris One Planet Summit, is a group of central banks and supervisors from across the globe to share the best practices and contribute to the development of the environment and climate risk management in the financial sector. It is an institutional yet voluntary membership, which will also help mobilise mainstream finance to support the transition toward a sustainable economy.

“The RBI expects to benefit from the membership of NGFS by learning from member central banks and regulators and contributing to the global efforts on green finance and the broader context of environmentally sustainable development,” Rao had said in the speech.

NGFS and the Basel Committee on Banking Supervision’s Task Force on Climate-related Financial Risks (TFCR). RBI being a Basel Committee member was already part of TFCR.



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