Page 36 - Banking Finance August 2024

ARTICLE

ADDRESSING

CLIMATE RISK IN

INDIAN BANKS:

STRATEGIES FOR

MITIGATION AND

RESILIENCE

T he financial sector faces a dual challenge: Understanding Climate Risk

recalibrating operations and strategies to sup-
Climate risk encompasses the potential adverse effects of
port the green transition while bolstering resil-
climate change on natural and human systems. As
ience against the increasing vulnerability to ad-
greenhouse gas emissions increase, the frequency and
verse climate events. This approach is crucial to safeguard
intensity of climate-related events such as extreme
financial stability. Estimates suggest that India requires at
weather, rising sea levels, and changing precipitation
least 2.5% of its GDP annually in green financing to address
patterns escalate. These changes pose significant risks to
infrastructure gaps exacerbated by climate events. The fi-
ecosystems, human health, and economies worldwide.
nancial system must mobilize and reallocate resources ef-
Indian banks are not immune to these impacts, which
fectively to contribute to the country's net-zero target.
threaten their asset quality, operational efficiency, and
However, climate stress-tests reveal that public sector
overall financial health.
banks (PSBs) in India may be more vulnerable than private
sector banks (PVBs).
In 2022, India experienced extreme weather events on 314
of 365 days. Despite this, major Indian banks have been
unprepared to confront climate risks, according to a report
by Climate Risk Horizons. This analysis, covering the year
2022-23, indicates significant gaps in the preparedness of
the Indian banking sector to measure, manage, and mitigate
climate risks. The study assessed the climate preparedness
of India's 34 largest banks, with a combined market cap of
Rs 29.5 trillion.

32 | 2024 | AUGUST | BANKING FINANCE