Banks hire environmental, social specialists to reduce NPA risks
Go green' appears to be the new mantra for banks as they struggle to stem asset quality risks in the current uncertain macro-economic environment.
A few banks have started appointing environmental specialists and social experts to appraise loan proposals before sanctioning big ticket advances. The move is aimed to reduce the scope of delinquencies arising from lack of environmental clearances or employee unrest.
Bankers explained that sometimes a project gets stuck for environmental clearance or due to union unrest because of unhealthy work environment. In such scenarios banks' loans are at risk. Hence, lenders are seeking the help of specialists to evaluate large ticket loan proposals. This is being done in addition to the routine loan appraisal process where lenders assess commercial viability of a project, cash flow expectations, etc.
"YES Bank has the environmental and social policy (ESP), which draws from the Equator Principles, IFC guidelines and other international best practices and provides a 360 degree risk mitigation framework. It covers impacts related to natural habitat, including air, water, land, flora, fauna and biodiversity. The policy also covers negative impact on the environment due to project financing, such as pollution, land water/ground water depletion, deforestation and habitat destruction," Namita Vikas, senior president and country head for responsible banking at YES Bank, told Business Standard.
She added that the private lender has been training professionals on environmental and social risks to help them in decision making after evaluating projects on ESG parameters.
"There is a large gap in the existing level of sensitisation among bankers on ESG parameters...This (training professionals) is just a starting point and such trainings could become part and parcel of risk assessment courses for BFSI (banking and financial services institution), and management institutions," Vikas said.
Its rival Axis Bank is planning to introduce ESG (environmental, social and governance) audit to appraise loan proposals soon. "A proposal has been submitted to the board. The bank will start asking for ESG certificates while appraising loan proposals," a person familiar with the development said.
But still very few banks have adopted this practice. Bankers claim that borrowers are often inclined to approach loans from banks that do not demand ESG audit. The Indian Banks' Association (IBA) is working towards creating a unified code for banks to create a level playing field and ensure balance between growth and sustainability.
"Some of these things need to start in the form of self-regulation. That is where IBA comes in and that will be the best way forward. In any project that needs environmental clearance there is an in-built clause in the loan. Every bank will put in their sanction letter that environmental clearance should be there. But what is happening is sometimes the clearance is there but problems still remain. So, some of the banks do not want to rely on certificates given by some government official. It is a good move by the industry," said a deputy governor with the Reserve Bank of India (RBI) on condition of anonymity.
Source: http://www.business-standard.com/article/finance/banks-hire-environmental-social-specialists-to-reduce-npa-risks-114121600153_1.html
