Climate change may lead to increased probability of defaults: RBI DG Rao
Climate change would lead to additional operational costs for borrowers with an increased possibility of a loss of their assets, leading to an increased probability of default by borrowers,
RBI deputy governor
M Rajeshwar Rao has said. Speaking on the topic 'Building a robust ecosystem for Green and
Sustainable Finance in India
', he said climate change risks impact the financial institutions, financial system and real economy through the traditional risk categories and one risk factor that prominently stands out is credit risk.
#Pahalgam Terrorist Attack
India stares at a 'water bomb' threat as it freezes Indus Treaty
India readies short, mid & long-term Indus River plans
Shehbaz Sharif calls India's stand "worn-out narrative"
"Climate change would lead to additional operational costs for the borrowers with an increased possibility of loss of their assets, leading to increased probability of default by the borrowers," he said at Credit Summit 2025 organised by the Bharat Climate Forum here on April 17.
The real economy is also impacted through various means such as direct property losses, crop losses, loss of employment and livelihood losses, according to his speech posted by the RBI on Monday.
Play Video
Pause
Skip Backward
Skip Forward
Unmute
Current Time
0:00
/
Duration
0:00
Loaded
:
0%
0:00
Stream Type
LIVE
Seek to live, currently behind live
LIVE
Remaining Time
-
0:00
1x
Playback Rate
Chapters
Chapters
Descriptions
descriptions off
, selected
Captions
captions settings
, opens captions settings dialog
captions off
, selected
Audio Track
default
, selected
Picture-in-Picture
Fullscreen
This is a modal window.
Beginning of dialog window. Escape will cancel and close the window.
Text
Color
White
Black
Red
Green
Blue
Yellow
Magenta
Cyan
Opacity
Opaque
Semi-Transparent
Text Background
Color
Black
White
Red
Green
Blue
Yellow
Magenta
Cyan
Opacity
Opaque
Semi-Transparent
Transparent
Caption Area Background
Color
Black
White
Red
Green
Blue
Yellow
Magenta
Cyan
Opacity
Transparent
Semi-Transparent
Opaque
Font Size
50%
75%
100%
125%
150%
175%
200%
300%
400%
Text Edge Style
None
Raised
Depressed
Uniform
Drop shadow
Font Family
Proportional Sans-Serif
Monospace Sans-Serif
Proportional Serif
Monospace Serif
Casual
Script
Small Caps
Reset
restore all settings to the default values
Done
Close Modal Dialog
End of dialog window.
by Taboola
by Taboola
Sponsored Links
Sponsored Links
Promoted Links
Promoted Links
You May Like
[Click Here] 2025 Top Trending local enterprise accounting software
Esseps
Learn More
Undo
"Another facet of credit risk in climate change emanates from the need to promote green and sustainable financing. The fact that the net-zero technologies driving the transition to decarbonisation, are at various developmental and evolving stages, itself signifies a significant increase in credit risks," Rao said.
Thus, there is a dichotomy wherein on one hand there is a need for incentivising green and sustainable finance and on the other there is an increase in inherent risks from encouraging such financing.
Live Events
"So, the key issue is how to manage this dichotomy. While the prudential aspect, i.e., the risk management consideration, is the prime concern for any regulator, the flow of credit is generally market determined albeit mandated at times through specific directed lending policies," he said.
Therefore, a delicate balancing act needs to be performed by the regulators to avoid any imbalance from the broader
financial stability
perspective, the senior RBI official said.
He further said challenges to green and sustainable finance are many and can be broadly categorised into two specific buckets - one is structural issues while the other relates to the quantum of financing available.
"The inherent risks in the green and sustainable finance, skews the risk-reward considerations leading to increased cost of credit. This leads to demand by private sector investors/ lenders for appropriate derisking mechanisms through grants/ guarantees/ philanthropic capital/ financial incentives, etc," Rao said, and added mobilising such capital on scale, would be a challenge.
The deputy governor further said that India occupies a unique position in the context of global climate.
As one of the world's fastest-growing economies, it faces the dual challenge of fostering and sustaining economic development while addressing climate change. On the one hand, it is highly vulnerable to climate risks while on the other hand, it has the potential to lead the global green transition.
"While we have made a fair start, there are several challenges that remain to be addressed," he said.
The risk management architecture in regulated entities for climate-related financial risks is still evolving and further concerted efforts are required.
In his speech, Rao also stressed that for the purpose of climate-related financial risk, assessment and related facets of green and sustainable finance, be it transition or adaptation finance, data is very crucial.
One of the limitations of climate risk assessment at this juncture is the need for technical expertise coupled with unique data requirements. Climate-related data, understanding nuances of climate patterns and the impact on account of climate change, is a highly technical and skilled job.
He said climate scientists across the world use supercomputers to study climate and weather patterns and its related aspects. It involves complex modelling and is resource-intensive.
"If we depend on a financial sector expert, who uses financial modelling for assessing quantitative estimates and then arrive at the financial sector impact, this expertise alone may not suffice," the deputy governor said.
The two skill sets needed for climate scenario analysis and climate finance risks are completely different in that as climate scientists are not experts in financial modelling and financial modellers have limited expertise in area of climate science, he said.
This makes the job of assessment of impact of climate change risks on financial sector more difficult and would therefore require collaboration amongst the two, Rao said.
The Reserve Bank has included sustainable finance and climate risk mitigation as a topic under the Theme Neutral "On Tap" application facility under the Regulatory Sandbox which could help develop and test innovative solutions.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
29 minutes ago
- Time of India
Quoting DIN (document identification number) not needed in tax notices, clarifies CBIC
New Delhi: The Central Board of Indirect Taxes and Customs (CBIC) Monday clarified that quoting a document identification number (DIN) is not required for communications generated through the common portal of GST, including show-cause tax notices, if they already bear a reference number (RFN). The CBIC had amended its earlier circular that made it mandatory to quote a DIN on all communications sent to taxpayers and other concerned persons. The move was initiated after several taxpayers did not respond to GST notices as they did not bear a DIN. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Top 5 Wealth Management Firms in The United States SmartAsset Learn More Undo The decision to exempt communication bearing RFN from DIN requirement is based on the fact that RFN is already verifiable through the GST portal, providing details of the document such as date of RFN generation, date of issuing the document, module, type of communication and name of the office issuing the document. "It is therefore clarified that for communications via common portal (in compliance with Section 169 of the CGST Act, 2017) having verifiable reference number (RFN), quoting of document identification number (DIN) is not required and such communication bearing RFN is to be treated as a valid communication," the CBIC circular said. Live Events
Time of India
38 minutes ago
- Time of India
Evaluating 20-25 critical mineral assets in multiple countries: NMDC CMD
Hyderabad: State-owned mining giant NMDC is evaluating 20-25 mining proposals across multiple countries as part of its aggressive international expansion strategy to diversify its portfolio into critical minerals. India's largest iron ore miner ventured into gold mining in 2023 and is now scouting for prospects in critical minerals such as coking coal, lithium, copper and iron ore abroad. These are among the 10 key minerals, including nickel, manganese, nickel, dolomite, bauxite and cobalt, identified by NMDC as key focus area. "These proposals are in different stages of evaluation. We are looking at a couple of iron ore mines, a couple of coking coal mines, a few lithium mines, and one or two copper mines. Most of these are in Africa, Australia, Indonesia, and Brazil," NMDC Ltd chairman & managing director Amitabh Mukherjee told TOI. While refusing to divulge too many specifics citing NDAs (non-disclosure agreements), he said NMDC is particularly active in three to four African countries with an eye on establishing a strong presence in emerging mining jurisdictions. Pointing out that the proposals are at various stage of evaluation with some at desktop study stage, some at technical studies and others at the due diligence stage, he said NMDC has a rigorous evaluation process that typically takes five to six months for each proposal. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like 5 Books Warren Buffett Wants You to Read In 2025 Blinkist: Warren Buffett's Reading List Undo While Russia and North America remain potential future markets, he said NMDC is currently concentrating on opportunities in the Southern Hemisphere and emerging economies. This strategic expansion is expected to strengthen NMDC's position as a global mining player while securing critical mineral resources for India's industrial growth, he indicated. In line with this global push, the company is also all set to open its wholly-wned international subsidiary called NMDC Global at GIFT City in Gujarat. The proposed subsidiary will work like NMDC's investment arm and will be the holding company for its overseas investments. Once set up, all its international investments will be made through step-down subsidiaries of this holding company that will be incorporated based as per the local laws of those countries. He said the push into critical minerals marks a significant diversification from NMDC's traditional iron ore focus, positioning the company to capitalise on the growing global demand for materials essential to renewable energy and electric vehicle technologies. On the impact of ongoing global geopolitical tensions and logistical challenges, he said NMDC maintains a long-term perspective on its acquisition strategy. Drawing parallels with NMDC's success in Bailadila, Chhattisgarh, which faced significant infrastructure and Naxalite challenges when operations began 60 years ago, he said the company is focused on evaluating assets based on their intrinsic quality rather than temporary external factors. "Mining business is about creating long-term value. We must evaluate assets on their merit, not just on immediate political or logistical scenarios," Mukherjee said, adding that the approach aligns with NMDC's philosophy of building lasting assets that generate value across generations.
Time of India
38 minutes ago
- Time of India
Centre extends Kusum-C solarproject deadline to March 2026
Bengaluru: Facing multiple hurdles in going ahead with the centrally sponsored PM-Kusum-C solar project, the state govt received a shot in the arm with the Centre extending the deadline for its implementation to March 2026. Launched a year ago, Karnataka was supposed to solarise 389 power substations under all five electricity supply companies (Escoms) by Dec 2024. However, the state govt commissioned only about 15 stations, while the work on 370 plus substations is still in progress under PM-Kusum-C (Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan). CM Siddaramaiah is scheduled to inaugurate one of the commissioned stations at Gauribidanur in Chikkaballapur district Thursday. The slow pace of the project in Karnataka is largely attributed to the delay in identifying and acquiring suitable land for setting up solar plants. "The solar plants need to be within a radius of 5-10km from substations, making it easier for the evacuation of power. While in some villages there was govt land, in some other villages, the govt land was not suitable for setting up solar plants, and we had to acquire private land on a lease basis. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Giao dịch CFD với công nghệ và tốc độ tốt hơn IC Markets Đăng ký Undo Even if there was land, the project agency spent considerable time levelling the ground for setting up solar plants. These hurdles in getting suitable land impacted the project considerably," explained a senior energy department official. This apart, drawing of transmission lines also turned out to be a major hindrance. "In a few substation limits, the lines had to be drawn over private lands, and farmers were sceptical that they couldn't cultivate any fruit-bearing trees if they allowed any transmission lines over their fields or demanded compensation to allow installation of concrete poles to set up transmission lines... We had to bypass such fields, and eventually, project implementing agencies had to take transmission lines underground at some locations," explained another engineer. Acknowledging the delay in the availability of land, energy minister KJ George said efforts were made in every district by taking MLAs into confidence. "I agree that we could commission only a few of the substations. But nearly 90 per cent of the work is in various stages, and in a month or two, they will also be completed, and generation will start," the minister explained.
