A new report has revealed that most Indian banks are still treating climate action as a compliance requirement rather than integrating climate risks into their core financial strategies, despite growing threats from extreme weather events and economic instability linked to climate change.
The analysis, released by Bengaluru based think tank Climate Risk Horizons, assessed the climate preparedness of 35 Indian banks with a combined market capitalisation of nearly Rs 50 trillion. The findings suggest that while climate-related disclosures have improved across the sector, deeper structural reforms in lending and risk management remain limited.
The report comes at a time when India is facing severe heat waves and energy pressures triggered by global geopolitical tensions and fossil fuel shortages.
According to the study, progress in the banking sector is being driven largely by regulations introduced by the Reserve Bank of India rather than by voluntary strategic shifts within banks themselves.
“Banks are making slow progress and most of it is being driven by RBI regulations,” said Anusha Das, lead author of the report. She added that banks must now understand how climate change affects their portfolios and financial health and incorporate those risks into business decisions.
Among the banks evaluated, Yes Bank, Union Bank of India, and Punjab National Bank emerged as the strongest performers on climate preparedness indicators.
The report assessed banks across ten categories, including climate scenario analysis, coal financing policies, emissions disclosures, board level oversight, and net-zero commitments.
Researchers found that 92 percent of Indian banks now disclose Scope 1 and Scope 2 emissions, while 63 percent seek third party verification of those emissions. Most banks also report some level of board oversight on climate issues. However, the report argues that these measures remain largely procedural and have not yet translated into major strategic or operational changes.
The analysis highlights major gaps in critical areas. Only five banks disclose financed emissions, which represent the largest share of a bank’s climate impact. Just six of the 35 banks studied have announced net-zero targets, and only State Bank of India and Punjab National Bank include Scope 3 emissions within those goals.
Coal financing policies also remain weak across the sector. Only Federal Bank and RBL Bank have announced clear coal phase-out commitments, while Union Bank of India has made a limited pledge without a defined timeline.
Although 34 banks report board-level oversight of climate risks, only 22 explain how those discussions influence lending decisions, portfolio strategies, or risk appetite. Similarly, while 14 banks say they conduct climate stress tests or scenario analyses, none publicly disclose the impact those tests could have on assets or capital reserves.
Co-author Sagar Asarpur warned that climate risks are rapidly becoming direct financial risks for the banking industry.
“The economic impacts of floods, heat, and drought are worsening,” he said. “Climate risks affect borrower cash flows, collateral quality, and portfolio stability.”
The report calls on Indian banks to move beyond disclosure-focused approaches and incorporate climate considerations into core operations such as credit appraisal, pricing, capital planning, and lending limits. It also recommends broader disclosure of Scope 3 emissions, stronger coal financing restrictions, and greater investments in climate risk data and analytical tools.
Researchers concluded that while RBI regulations have improved transparency around climate reporting, banks must now turn those disclosures into meaningful risk management strategies capable of protecting financial stability in an increasingly climate vulnerable economy.