How are Indian banks falling short in climate action?

Indian banks’ climate preparedness is mainly due to regulatory pressure, rather than a full recognition and integration of climate risks into decision-making, according to a report released Wednesday.

Bengaluru-based think tank Climate Risk Horizons banking report assesses the state of climate-risk preparedness of 35 Indian banks with a combined market capitalisation of around ₹50 trillion.

The analysis evaluates the banks on ten criteria, including Climate Scenario Analysis, Board-Level Oversight of Climate Risk, Coal Policy, Emissions Disclosure, and Net Zero Targets, among others.

According to the analysis, 92% of Indian banks now disclose Scope 1 and 2 emissions, 63% obtain third-party verification for their emissions, and most have board oversight of climate risk. Yes Bank, Union Bank of India, and Punjab National Bank have emerged as leading performers.

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Slow progress so far

This is progress from much lower levels reported in our previous analyses. While this reflects better regulatory compliance, it is still more procedural than strategy-driven, the report finds.

“Banks are making slow progress, and most of it is being driven by RBI regulations. But the next step is just as important—banks need to understand more specifically how climate change is affecting their portfolios and overall financial health, and integrate that learning into their business behaviour,” said Anusha Das, lead author of the report.

Only a few banks have taken stronger steps, such as measuring financed emissions, setting coal phase-out policies, or conducting climate scenario analysis. Only five banks disclose financed emissions, which account for the majority of a bank’s total climate impact.

Only Federal Bank and RBL Bank have published clear coal-phase-out commitments, and Union Bank of India has made a limited pledge that is not yet time-bound.

Banks Net Zero target

Only 6 out of 35 banks have a Net Zero target, and only two banks, State Bank of India and Punjab National Bank, include scope 3 emissions in their Net Zero goal.

Climate risk considerations have risen across India’s banking sector, but there remains a clear divide between leading banks making strong progress and those moving slowly. While 34 banks report some form of board-level oversight of climate issues, only 22 demonstrate how this oversight affects credit decisions, portfolio alignment, or risk appetite.

Only five banks provide comprehensive, sector-wise disclosures of sustainable lending. While 14 banks report conducting climate scenario analysis or stress tests, none disclose the resulting impacts on capital or assets. This lack of disclosure limits how risk management can benefit from the test results.

“The economic impacts of physical climate risks such as floods, heat, and drought are worsening. Climate risks cannot be treated as peripheral sustainability concerns. They affect borrower cash flows, collateral quality, and portfolio stability. Indian banks now need to integrate adaptation and resilience into transition planning and support investments that strengthen resilience on the ground,” said Sagar Asarpur, co-author of the report.

The way forward

The report highlights the need for banks to move beyond compliance-led approaches and integrate climate risk into core operations and strategic decision-making, including credit appraisal, pricing, portfolio limits, and capital planning.

It calls for a broader Scope 3 emissions disclosure, commitments to halt new coal financing with clear phase-out timelines, and increased investments in climate data, tools, and internal capacity to support climate risk assessment and supervisory reporting.

The report concludes that while regulatory measures from the Reserve Bank of India have improved climate-related disclosures, banks now need to translate these disclosures into risk management decisions that protect asset quality, portfolio resilience, and financial stability.