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Indian banks are making only limited progress in preparing for climate risks, with much of the action being driven by regulatory pressure rather than long-term business strategy, according to a new report by Bengaluru-based think tank Climate Risk Horizons. The assessment, which examined 35 Indian banks with a combined market capitalisation of around ₹50 trillion, found that while climate-related disclosures have improved in recent years, most lenders still treat climate risks as a compliance exercise instead of integrating them into lending and investment decisions. The findings come as India faces rising economic losses from floods, heatwaves and other climate-linked disasters that are increasingly affecting borrowers, infrastructure and financial stability.
More banks are disclosing climate data, but major gaps remain
The report shows that climate-related reporting has expanded significantly across India’s banking sector. Around 92% of banks now disclose Scope 1 and Scope 2 emissions, compared to just 40% in 2022, while 63% obtain third-party verification for their emissions data. In addition, 97% of banks now report some form of board-level oversight of climate or ESG-related issues.
But researchers say the progress is still largely procedural. According to the report, only 22 out of 35 banks explain how climate oversight actually influences lending decisions, portfolio alignment or risk appetite. Just five banks disclose financed emissions, which represent the largest share of a bank’s climate impact because they include emissions linked to the projects and companies banks fund.
The analysis also found that only 14 banks have conducted climate scenario analysis or stress tests, and none publicly disclose how those results could affect their assets or capital position. Researchers warn that without integrating climate risks into core financial decisions, disclosures alone may do little to protect banks from future shocks linked to extreme weather and the energy transition.
Coal financing and Net Zero commitments remain weak
The report highlights major gaps in how Indian banks are handling fossil fuel exposure. Only Federal Bank and RBL Bank have announced clear coal phase-out commitments, while Union Bank of India has made what researchers described as a limited pledge without a clear timeline. Overall, only 2 out of 35 banks assessed currently have a coal exclusion policy.
Net Zero commitments also remain limited. Just six banks have established Net Zero targets, and only State Bank of India and Punjab National Bank include Scope 3 or financed emissions within those goals. Researchers say most banks still focus mainly on reducing operational emissions, while avoiding deeper changes linked to their lending portfolios.
The report identifies Yes Bank, Union Bank of India and Punjab National Bank as the leading performers on climate preparedness. Even among the top-ranked institutions, however, researchers say climate integration remains uneven and far from comprehensive.
Climate risks are becoming a financial stability issue
Researchers involved in the analysis argue that climate change can no longer be treated as a peripheral sustainability concern for banks. Rising temperatures, floods, droughts and heatwaves are increasingly affecting businesses, property values and supply chains, all of which directly influence loan repayment capacity and asset quality.
The report warns that Indian banks remain particularly exposed because climate adaptation and resilience are still weakly integrated into lending practices. It calls for banks to move beyond disclosure-based compliance and incorporate climate risks into credit appraisal, pricing, capital planning and portfolio limits. Researchers also recommend broader financed emissions disclosure, stronger coal financing restrictions and greater investment in climate risk tools and internal expertise.
The findings arrive at a time when the Reserve Bank of India has delayed plans to mandate climate risk disclosures for banks amid concerns over regulatory complexity and reporting burdens. Analysts say that without clearer policy direction and stronger institutional commitment, India’s banking sector may struggle to keep pace with the growing financial risks linked to climate change.
References:
https://climateriskhorizons.com/app/uploads/2026/05/BankingReport4_May2026.pdf
Indian banks’ climate action falling short, driven more by regulation than strategy
Banner image: Photo by rupixen on Unsplash
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