With India’s focus on renewable energy on the rise, bank credit towards non-renewable energy is on the decline, said senior bankers.
According to the recent sectoral deployment of credit data released by the Reserve Bank of India (RBI), banks’ credit to petroleum, coal products and nuclear fuels fell 13% year-on-year (YoY) and 1% month-on-month (MoM) to Rs 1.31 trillion in January. At the same time, credit to mining and quarrying, including coal, dropped 7% YoY and 5% MoM to Rs 54,123 crore.
While credit to non-renewable sources is moderating, credit to renewable energy sector is growing although the base is much lower. For instance, credit to renewable energy sources rose 17% YoY and 11% MoM to Rs 5,404 crore in January, the RBI’s data showed.
“As a lender we have already started evaluating borrowers based on their ESG rating. Though of course, it is not impacting our decision in terms of interest rate for borrowers. But nevertheless we are also sharing ESG rating with borrowers just to make them aware where do they stand,” State Bank of India Chairman Dinesh Kara said earlier this month.
He added that the bank is required to report Scope 3 emission to the Securities and Exchange Board of India. “I think there is increasing awareness being built in the ecosystem, which will eventually start impacting on pricing part also. So we are in the right direction,” he said.
Sebi’s business responsibility and sustainability reporting (BRSR) format mandates top corporates to disclose the Scope 3 related emissions risk in their portfolio. Scope 3 emissions are essentially the indirect green house gas emissions that occur outside of the organisation, including both upstream and downstream emissions.
Last week, the RBI earlier issued a draft standard disclosure framework on climate-related financial risks for all lenders, making lenders shy in disbursing incremental funds to carbon emission heavy corporates. While the regulator has asked feedback on the circular by April end, it has mandated banks to report governance, strategy and risk management processes from FY26 and climate finance metrics and targets from FY28.
A senior private bank official told FE that in current times, lenders are not interested in funding thermal plants due to higher carbon emissions.
“In the last 3-4 years, there has been more emphasis on renewable sector. Adani, for example, started life with coal but today only talks about renewables. Ambani was never in power but now talks only about renewables. Hindujas were active 10 years ago but now no one is interested in coal projects. Businesses are focused only on hydrogen or other renewable sources,” he said.
Another senior official at a public sector bank said that banks are moderating exposure to carbon heavy entities to ensure India meets zero carbon emission target by 2070. “The entire focus is now on renewable sources for funding. ESG is another area where all banks are actively working. However, not all funds to coal and non-renewable sector have stopped, but the focus has majorly shifted to renewable sector where things are looking good,” he said.
A senior executive from a consulting and auditing firm explained that the number the investments have fallen in the number of new projects are also on the decline. Also, less than 25,000 MW is getting added in thermal. In nuclear too, not much capacity is getting added hence funding requirement is also not much there.
To be sure, despite the rise of renewable power, the non-renewable power segment continued dominating overall power mix—in terms of power generation and distribution. Analysts say thermal power generation is expected to continue playing a significant role, accounting for nearly half of the electricity produced by FY30, and providing reliable support during peak demand periods. Thermal mix in overall power generation stood at 75% as on December end.
According to a report by SBI Caps, in addition to debt financing for thermal companies, there is a growing need for capital recycling from operational projects to fund new ones. InvITs in the transmission sector have shown promise and similar mechanisms can be extended to the generation side.
“Furthermore, the privatisation of DISCOMs needs to resume to attract private fund flows. Energy companies, including both electricity and oil & gas players, are adapting to the changing landscape by diversifying into non-fossil fuel sources for sustainability,” the report said.
These measures include building a substantial renewable portfolio, potentially leading to equity listings and forming strategic partnerships for renewable arms to unlock their value. Meanwhile, cash flows from conventional energy businesses are also expected to support internal accruals, facilitating the transition to a new energy paradigm.