As close to 40 per cent of the gross credit exposure of Indian banks is in sectors where water risks are significant, these risks can place further liquidity constraints on the already stressed balance sheets of banks in India, says a report from WWF India.
The report said water risks could lead to stranded assets in the power and agriculture sectors, two sectors that account for the highest gross credit exposure of Indian banks. Banks are already reeling under a crisis of non-performing loans with close to 10 per cent of gross-advances of the Indian banks facing a risk of non-payment from debtors.
According to NITI Aayog, the current water crisis in the country is its ‘worst ever’. With water being a shared resource, what the country requires is a comprehensive and sustainable water management plan by various stakeholders, the WWF report said.
Launched with the Indian Banks’ Association, the WWF report ‘Hidden Risks and Untapped Opportunities: Water and the Indian Banking Sector’ provides evidence for why water presents a material risk for banks in India.
Bhavna Prasad, director, sustainable business, WWF India, said, “Water is and will continue to be a critical risk factor for the portfolio of the Indian banks.”
The report provides a systematic understanding of this risk and a framework that banks can use to effectively assess, measure and mitigate it.