SBI to factor in climate finance risk: Chairman Dinesh Kumar Khara

The gross non-performing assets (GNPA) ratio of green industrial loans, however, has been higher during the same period, especially for PSBs, it said

State Bank of India (SBI) will focus on factoring in environment-induced financial risk in its overall risk management strategy during the current fiscal year (2023-24), according to its Chairman Dinesh Kumar Khara.

Khara, in a communiqué to shareholders in the annual report for 2022-23 (FY23), said it was widely expected that the Reserve Bank of India (RBI) would make tangible progress in this direction during this fiscal year.

The country’s largest bank remains committed to incorporating principles and practices that promote sustainable banking operations.

Its annual general meeting will be on June 27 in Mumbai.

The RBI, in its report on Currency and Finance 2022-23, had flagged the vulnerability of banking groups. The results of a climate stress test reveal that public sector banks (PSBs) may be more vulnerable than private banks in India.

In recent years, bank credit to green industries has accelerated at a pace faster than ‘brown’ industries (high-carbon emitting industries). This is a sign of improved recognition of climate risks. The acceleration has primarily been driven by private banks.

The gross non-performing asset ratio of green industrial loans, however, has been higher during the same period, especially for PSBs, it said.

SBI received a score of ‘B’ in 2021-22 under the carbon disclosure project, indicating that the organisation has addressed the environmental impacts of business and ensured good environmental management.

In FY23, SBI firmed up an environmental, social, and governance (ESG) framework, which captures how we manage risk and opportunities around sustainability issues. It also has developed a duly vetted ESG financing framework, based on which it raised a social syndicated loan for $1 billion in FY23.

The RBI’s guidelines on green deposits open new opportunities on the liability side to green the bank’s balance sheet, added Khara.

The bank is comfortably placed in terms of growth capital in the current year. With declining credit costs, the lender intends to explore opportunities for lending in sunrise sectors such as sectors identified under the production-linked incentive scheme, renewables as well as electric mobility to diversify the portfolio.