Public sector banks are incorporating environment, social, and governance parameters into their credit risk assessment processes. Seven banks, including the State Bank of India, lead this initiative to enhance credit appraisal. They are developing climate risk frameworks for credit workflows and adopting standardized emission calculation methodologies. The EASE 9.0 Reform Agenda monitors these developments to modernize state-run lenders.
New Delhi: Public sector banks have begun integrating environment, social and governance (ESG) parameters into corporate credit risk assessment. Seven banks, including the country’s largest lender, State Bank of India, have taken lead in this regard and are strengthening their credit assessment parameters and building sectoral capabilities, according to a review under the banks’ reforms agenda.
Lenders are also formalising climate risk frameworks for portfolio monitoring and credit workflows, and adopting the Partnership for Carbon Accounting Financials (PCAF) methodology for standardised financed-emission calculations. These developments have been shared with the government and are being monitored under the EASE 9.0 Reform Agenda, said people familiar with the matter.
“These parameters are included under the Socio-economic Impact (for Viksit Bharat) and banks are further developing expertise towards sustainable finance, inclusive banking and empowering emerging segments,” said a bank executive, who did not wish to be identified.
The Enhanced Access and Service Excellence (EASE) reforms, steered by the Department of Financial Services, are designed to modernise state-run lenders through governance, technology and risk-management upgrades.
Under Ease 9.0, banks are developing a framework for efficient capital, liquidity management through capital recycling, economic capital integration and advanced behavioural models. According to the review for the first quarter of this financial year, lenders are also advancing investor relations through structured processes for stakeholder engagement and benchmarking with global banks.
“The reform agenda will also be a benchmark for the new reforms committee announced by the government. At present, the focus is on strengthening operational risk frameworks, modernising core IT systems, lending for emerging sectors and sustainable finance,” said another executive, who also spoke on condition of anonymity.
As per the review, public sector banks have started to embed sector-specific models in credit underwriting capabilities, strengthening their credit appraisal process. In October, the government announced a high-level committee to recommend structural, institutional, regulatory and legislative reforms in the banking sector to make it globally competitive, financially inclusive and resilient, as India works towards Viksit Bharat 2047, aiming to transition to a developed nation by the 100th anniversary of its independence.
The panel will assess the long-term capital requirements of banks, development financial institutions and non-banking financial companies, and recommend funding sources and mechanisms to support credit growth.
It will also review the Priority Sector Lending framework and Lead Bank Scheme to assess their relevance, effectiveness and coordination in promoting inclusive, balanced and data-driven credit delivery in line with evolving economic priorities and financial inclusion goals.