Water problems could push the non-performing assets of banks higher as many lenders have loan exposure in sectors where there are risks to water resources, says a report.
At a time when the banking sector is grappling with mounting NPAs, the World Wildlife Fund (WWF) report released Wednesday said water risks could pose further "liquidity constraints" on the strained balance sheets of banks.
Launched with the Indian Banks' Association (IBA), the WWF-India report 'Hidden Risks and Untapped Opportunities: Water and the Indian Banking Sector' provides evidence for why water presents a material risk for banks in India, particularly how water risks could lead to stranded assets in the power and agriculture sectors, two sectors that account for the highest gross credit exposure of Indian banks.
According to the report, close to 40 per cent of the gross credit exposure of Indian banks is in sectors where water risks are significant.
"Reeling under a crisis of non-performing loans with close to 10 per cent of gross-advances of the Indian banks facing a risk of non-payment from debtors, these risks can place further liquidity constraints on the already stressed balance sheets of banks in India," it said.
Citing NITI Aayog's observation, it said, the current water crisis in the country is its worst ever.
"With water being a shared resource, what the country requires is a comprehensive and sustainable water management plan by various stakeholders," the report said.
While banks are exposed to the risks of water as lenders to businesses, it also places them in a unique position to influence businesses to proactively handle various water related risks, including using WWF's Water Risk Filter and enabling flow of capital towards solutions which address such risks, the report added.