India’s central bank cautioned banks in its bulletin last year to limit their exposure to fossil-fuel-related industries and to boost green finance in a larger push to mitigate climate-related financial risks.
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Going forward, everyone knows coal is a financially risky bet.
Saurabh Trivedi, research analyst, Institute for Energy Economics and Financial Analysis
Still, only one Indian bank - Federal Bank, a private bank headquartered in southern Kerala - has put coal on its exclusion list for loans, according to energy think tanks.
Elsewhere in Asia, 41 financial institutions implemented formal coal exit policies in 2022, up from only about 10 between 2013 and 2019, with Japan and South Korea front-runners, found an IEEFA analysis released in May this year.
“Indian financial institutions are a long way behind in terms of formulating coal divestment policies,” the report said.
Coal or renewables?
Besides growing global pressure for banks to shun coal, the financing delays to new mines reflect bankers’ concerns about the granting of environmental permits that are required by miners prior to acquiring land - used by banks as collateral.
Such concerns were addressed at last month’s meeting.
“We made the banks aware of the (land acquisition) process and we are hopeful they will finance these new miners,” the coal ministry official said.
The banking sector has been more cautious about granting loans to coal miners since 2014, when India’s Supreme Court scrapped all but four of 218 coal blocks allocated by the government since 1993, describing the allocations as illegal.
India’s simultaneous push to build its renewable energy capacity to 500 gigawatts (GW) by 2030 may be another factor turning bankers away from coal, energy experts said.
With clean energy capacity growing and the possibility of energy storage systems approaching fast, “the incremental market and the readiness of customers to buy coal at any price may disappear”, said Sutirtha Bhattacharya, former chairman and managing director of state-run Coal India Limited.
This “risk of migration” could be influencing banks’ investment decisions, he added.
Consulting firm Climate Trends assessed project finance loans to 42 coal and renewable energy projects in India - which has set a net-zero goal by 2070 - that reached financial closure in 2021 and found that all the investment had gone to renewable energy projects.
Transition plan?
But India’s government says the nearly 90 newly auctioned mines in the world’s most populous country will help meet its ever-growing energy demand as crippling heatwaves and growing consumer numbers make thermal plants hungry for more coal.
“There is a gap of 200 million tonnes in the domestic coal capacity and consumption. We’re filling that gap from coal imports currently. These mines are important,” said the coal ministry official.
The government estimated these new mines would collectively generate 332 billion rupees (US$4.05 billion) in revenue and provide employment to more than 300,000 people.
Such policies mean that despite a nascent shift in thinking, most banks remain coal-friendly and are yet to work out their transition plan away from the polluting fuel, analysts say.
“India cannot progress without coal and the transition is another 10-15 years away,” said an Indian banking sector analyst, asking not to be named because he was expressing his personal views, not his employer’s.
“There are some banks that have decided to limit their exposure, but not officially as yet, while others will do so after a period of time,” the analyst added.
India’s largest bank - the State Bank of India - remains a key funder of coal projects - even as its annual reports of the past two years show a drop in funding for coal to 50 billion rupees (US$609 million) from 78 billion rupees.
Another private lender, Axis Bank - which spoke of scaling down its exposure to highly carbon-intensive sectors in its most recent annual report - said it was “committed to supporting the low-carbon transition of the Indian economy”.
Axis Bank has a coal and thermal power portfolio, but conducts “extensive environmental and social due diligence” before lending to such projects, said Rajiv Anand, the bank’s deputy managing director.
Still, the banking sector analyst warned it could take years for that approach to become widespread.
“Climate awareness is yet to percolate among most banks,” he said.
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