Indian banks wary of financing coal projects
23 July 2023
Indian banks are now reluctant to finance newly auctioned mines, despite the country requiring coal to meet growing energy demands.
In the past three years, 87 mines have been auctioned to private companies as part of India’s Unleashing Coal strategy. Of those, only four are operational, and the rest await financing, an official from the coal ministry told Reuters.
The bankers are wary for two reasons. First, India is in parallel pushing schemes and policies to boost investment in the renewable energy sector, raising questions about the long-term viability of coal. Second, global investors now demand that lenders reduce their exposure to fossil fuels.
In 2020, for the first time, the Indian Government opened coal deposits to the commercial sector. The move was seen as a step towards energy self-sufficiency and criticised for derailment from climate commitments.
As global investors align their portfolios to environmental, social and governance goals, coal is increasingly considered risky. In 2022, India’s central bank cautioned other banks to reduce their exposure to fossil fuels and move investments to green finance. Yet, only one private bank, The Federal Bank headquartered in Kerala, has excluded coal from its list for loans.
Bankers also have legal reasons to tread safely in the coal territory. In 2014, illegal coal block allocations led the Supreme Court of India to declare 194 allocations of coal mining rights made between 1993 and 2011 as illegal and arbitrary.
Moreover, the Indian Government, in April, set an ambitious target of having 500GW of installed renewable energy by 2030, which includes the installation of 280GW of solar power and 140GW of wind power.
“There is a gap of 200 million tonnes in the domestic coal capacity and consumption. We’re filling that gap from coal imports currently. These mines are important,” a coal ministry official told Reuters.
As of 2022–23, India generates 73% of its power from coal, which is expected to go down to 55% as the share of renewables increases. However, the rate of migration to other sources is not rapid enough.
India’s public bank, the State Bank of India, remains a key funder of coal projects even though its funding towards coal has dropped to Rs50bn ($610m) from Rs78bn.
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