By Ashwin Manikandan
(Reuters) -India’s central bank is close to finalising rules for banks and financial institutions to disclose and manage risks from climate change, three sources aware of the matter said.
The move runs counter to several top global banks including JP Morgan, Citibank, Morgan Stanley and HSBC, which have decided to scale back their climate commitments with the re-election of climate-sceptic U.S. President Donald Trump being seen as a trigger.
Getting a better idea of how, and to what extent, money is flowing to green investments is a central part of global efforts to move to a low-carbon economy, with countries from the UK to Japan making such disclosures mandatory.
The Indian central bank’s norms, which have been in the works since 2022, are expected to ask banks and financial institutions to make regular disclosures about climate-related risks in their loan portfolios along with mitigation strategies and targets, the sources said.
The disclosures are likely to be on a voluntary basis from fiscal year 2027 and then mandatory from fiscal year 2028. India’s financial year runs from April till March.
Banks will also be asked to conduct periodic stress tests to gauge the impact of adverse climate events such as floods, heatwaves and cyclones on borrowers and the economy, based on a guidance note which the central bank is also likely to issue soon, the sources added.
All three sources requested anonymity as they are not authorised to speak with media.
The RBI did not respond to an email from Reuters.
The central bank’s decision to move forward with the rules has not been previously reported.
The Reserve Bank of India has previously recognised climate change as a source of major financial concern, and released a draft standard disclosure framework in February 2024 for public feedback.
“The signal from the central bank based on recent meetings is that the detailed norms are almost finalised and are expected very soon,” the first source said.
Many banks have already started collating data and setting targets to meet the disclosure standards, the source said.
Some large banks have put out tenders to bring in climate consultants to help them with the disclosures, according to public documents.
ASSESSING BORROWERS FOR CLIMATE RISK
The RBI’s decision to move ahead with climate disclosures for its banks comes soon after India released a draft framework aimed at facilitating a greater flow of resources to climate-friendly sectors.
India is also gearing up to publish a new national emissions-reduction target ahead of the next round of global climate talks in Brazil in November.
India, the world’s third largest polluter behind China and the United States, currently aims to achieve a net zero emissions target by 2070.
As part of the central bank’s climate disclosure rules, banks will be required to calculate gross emissions of borrowers and disclose this information by asset classes and industries, according to the draft norms.
Such disclosures are expected to be included in their financial statements.
Separately, the central bank has also shared a 52-page draft note with large banks, a copy of which Reuters has reviewed, prescribing a methodology to forecast and analyse the impact of adverse climate events as well as transition risks on borrowers’ ability to repay loans.
The transition risks are those which emerge from the changing consumer behaviour, policy and technology changes, as the world moves towards a low-carbon economy, as per the note.
While banks are preparing to disclose climate risk embedded in their loan portfolios, they do not expect these disclosures to impact loan pricing in the short term.
“As of now we don’t have enough granular data to reliably price in these risks in our portfolios, but the long-term approach could be in that direction,” said the second source, who is a banker at a state-owned lender.
(Reporting by Ashwin Manikandan; Editing by Ira Dugal and Kim Coghill)
