Tracking Green and
Responsible
Investments in India
How green is government's own spending?
Indian
Government spends 20 – 30 % of the GDP on public procurement.1
There is neither a formal public procurement policy nor a law in India.
There is a pressing need for both, as rules without law lack
enforceability and law without policy support suffers from a lack of
coherent justification or rationale for the provisions made.
Sustainable procurement is a process whereby
organisations (public or private) procure goods and services in a manner
that generates benefits to the organisation, society and economy, while
ensuring that the environmental impact is minimal.
Given the massive size of public spending,
public sector in India can be a prime driver of sustainable production
and consumption and can create environmental and economic benefits.
In India, public buying has been used as a
medium to achieve
various
social objectives such as reducing unemployment, providing employ-ment
to disabled individuals and to backward regions in the country,
promoting gender and ethnic equality etc. The focus has largely been on
social aspects of sustainability.
Since there is no law on public procurement,
preference for certain kind of products and services in the procurement
process therefore has been introduced through policy measures and
guidelines. These are primarily department led and focus on promoting
procurement from micro and small enterprises (MSMEs) or give preference
to indigenous procurement in the defense sector.
How green and responsible are investments
by National Financial Institutions in India?
Banking sector is generally considered as
environmental friendly. Environmental impact of the banking sector such
as use of energy, paper and water is relatively low and clean as it is
not physically related to the banking activities but with customers'
activities.
The Reserve Bank of India (RBI) issued a
circular in December 2007, emphasising the important role banks play in
establishing institutional mechanisms to promote sustainability and so
should act responsibly.
Green Banking is like normal banking, which
considers all the social and environmental / ecological factors with an
aim to protect the environment and conserve natural resources. There are
no green banks currently in India. Government-owned Indian Renewable
Energy Development Agency, the country's only non-banking finance
company dedicated to clean energy funding has begun work towards
converting itself into a commercial bank. In India, YES Bank and IL&FS
have joined UNEP's Finance Initiative and IDFC has adopted the Equator
Principles.2 Financial Institutions and banks are not
supposed to release funds unless environmental clearances have been
obtained. However, there have been a number of projects funded by the
Development Finance Institutions (DFIs) that have been extremely
controversial from an environment point of view (Mandal and Venatramani
2012). Paralleled with growth in industry and infrastructure, the
Non-Performing Assets (NPAs) of Indian banks, particularly that of the
public-sector banks (PSB), have been witnessing a steady rise. At its
current level, India's NPA ratio is higher than any other major emerging
market (with the exception of Russia), higher even than the peak levels
seen in Korea during the East Asian crisis.
![](images/Pg9.jpg)
How big is the Non-Performing Assets
problem?
Bad loans (or non-performing assets) in
Indian banks have risen from INR 566 billion in 2007-08 to INR 3
trillion in 2014-15. This is an increase of 470% in a span of 7 years .
Public sector banks amount to much higher amount of bad loans where as
private sector banks have managed to maintain low levels of NPAs as
compared to the public sector banks. The Public Sector Banks' share of
total NPAs increased from 65% in 2008-09 to 86% in 2014-15 while the
Private Sector Banks for the same period brought down their share of
NPAs from 24% to 10%.
Some insights![](images/Pg9b.jpg)
-
Moody's Investors Service, in October 2011
downgraded the State Bank of India's Bank Financial Strength Rating (BFSR)
to 'D+' from 'C-'.
-
A majority of NPAs are contributed by
corporate customers. Crisil, a global analytical company, reported that
188 companies in India had defaulted in payment of interest and/ or
repayment of principal in 2011-12, as against 105 in the previous
financial year. A classic case in point being the Kingfisher Airlines,
which alone caused SBI an exposure of INR 17 billion.
-
While many of the banks habitually point to
farmer debts as the major reason for the mounting bad loans,
investigation reveals that loans to the large industries are one of the
main causes for the current situation. For the year 2014-15, the
Priority Sector Loans of the Public Sector Banks, which include
agriculture, small scale businesses, micro credit, education and housing
contributed to only 34.69% of the total NPAs whereas the remaining bulk
of NPAs were derived from the Non-Priority Sector which includes loans
to large industries like Infrastructure and Iron & Steel. According to
the RBI's December 2017 Financial Stability Report, large borrowers3
account for 56% of bank debt and 88% of their NPAs.
-
The Union Cabinet has planned to amend the
Banking Regulation Act to speed up the resolution of the INR 9.64
trillion stressed assets choking the Indian banking system . According
to RBI, Infrastructure, Iron & Steel, Textiles, Mining (including Coal)
and Aviation are the most stressed sectors.
-
According to the data from RBI in 2008, the
Priority Sector4 had 63.96% of the total NPAs of Public
Sector Banks, while the Non-Priority Sector had 34.29% of the total
NPAs. However, the trend has reversed in the past few years and the
share of Priority Sector in total NPAs of Public Sector Banks has come
down drastically to 34.61% by 2015, while the share of Non-Priority
Sector in total NPAs has jumped to 65.26%.
Conclusion
Moving financial flows to be more green and
responsible will require a push through both policy initiatives as well
as, private business and investment practices. While some progress has
been made towards greening investments by financial institutions, non
performing assets currently seem to eclipse the financial sector away
from being green and fair.
■
Endnotes
1 (United Nations Office on Drugs
and Crimes, 2013)
2 Equator Principles are
voluntary guidelines for categorising, assessing and managing
environmental risks when providing project finance in excess of USD10
million. The Equator Principles are reportedly based on the
International Finance Corporation’s (IFC) Performance Standards on
Environmental and Social Sustainability, and on the World Bank Group’s
Environmental, Health and Safety Guidelines.
3 The central bank defines these
as debtors to whom lenders have an exposure of at least INR 50 million.
4 Lending to farmers, small scale
entrepreneurs and other marginalized sections of society.
Anshul S Bhamra
abhamra@devalt.org
Back to Contents |