Gradually but steadily, the country?s banks are gearing up to tap the newly-emerged and fast growing carbon credit market. A few like the State Bank of India (SBI), ICICI Bank, IDBI and SIDBI have already made inroads into the market.
A study by the World Bank shows that despite being the second largest seller of carbon credits in the world, India still lags behind China as the price expectations of sellers in India are much higher than those across the globe.
Clearly, a lot of work needs to be done in the area of educating the players in India and offering them quality consultancy services.
Any project of carbon credit has essentially to be registered with the CDM Executive Board of Bonn and firms require technical advice. The advice is critical before they start producing carbon credit-worthy materials. Any process, which results in energy efficiency and switch off fuel from fossil fuel to green fuel like municipal waste, biomass or wind energy, can generate carbon credits.
In this space, the State Bank of India (SBI) provides advisory services for those companies that want to go for clean development mechanism (CDM). Also, the bank gives upfront loans against carbon credit receivables. SBI has recently entered into a MoU with KFW (a German firm) Carbon Fund for jointly exploring financing of sustainable clean development mechanism opportunities in various development and industrial sectors. KFW acquires the CERs in its own name at fixed or flexible prices and on the basis of long term purchasing agreements in line with international standards.
SBI provides a single point delivery of services related to carbon credits/clean development mechanism business, under the Kyoto Protocol, to its customers. These include, apart from finance to implement CDM projects, advisory services and value-added products like securitisation of carbon credit receivables and delivery guarantees.
So far, the bank has been able to clear only one such loan, valued at Rs 8 crore, against the receivable to a biomass-based power plant in Indore. Apart from it, the bank was under the process of clearing 3-4 more such loans that will be considered for loan once they enter the purchase agreement with their buyers. This offers security to the sellers of CERs and investors, and enhances the creditworthiness of the projects.
ICICI Bank has already signed a $200-million line of credit from JBIC to fund carbon credit-related projects, said Sanjeev Mantri, general manager, ICICI Bank. The bank is involved at all stages of carbon credit project cycle and look forward to providing full range of services in this space. Services offered by the bank include assistance to clients in identification of CDM projects and registration of the same and finally issuance of carbon credits in association with our partners by funding and private equity syndication for CDM projects and structuring carbon credit transactions. Also, the bank is working with SMEs for carbon credit market. Apart from it, the bank has formed a dedicated vertical to work on opportunities arising to Indian SMEs from climate change and carbon credits. The bank has a multi-pronged approach as it has tied up with consultants to help extend advice on setting up carbon credit linked projects and on energy conservation etc to the clients.
The bank is also putting in place shortly an awareness program for their clients on the need to be energy efficient. These would also include programmes to showcase successful energy conservation and CDM projects?all this would create a facilitative support system for SMEs keen to take advantage of the CDM mechanism to reduce their power costs as also contributing in their own way to a clean environment.
IDBI Bank has got an active desk dedicated to carbon credit business. It is attempting to offer end-to-end solutions to corporates. Moreover, the bank has already reached certain tie-ups for technical and financial assistance. It provides finance against carbon credits, which are yet to be generated. Some of the products being developed by the bank in the field include providing guarantees for carbon deliveries and escrow services for payment.