A new analysis of energy project lending in India shows that majority of government-owned banks and financial institutions continued to fund coal projects in 2017. The same analysis also reveals private financial companies are comparatively investing more in renewable energy (RE) projects compared to coal. The report finds that coal received ₹60,767 crores (US$9.35 billion) in lending whereas RE received ₹22,913 crores (US$3.50 billion).
Joe Athialy, Executive Director of CFA, said “It seems like the government and public financial institutions are living in a bubble devoid of market forces. The shift against coal and towards solar and wind is quite well established in the financial markets now and investing in coal has and will expose public banks to further bad loans.”
This report identified and reviewed project finance lending to 72 energy projects, comprising coal-fired power stations and renewable energy generation facilities in India that reached financial close in 2017. These projects attracted total lending of ₹83,680 crores (US$12.85 billion).
Of the top 10 lenders to coal power projects, 8 were majority government-owned banks that collectively gave close to ₹30,337 crores (USD 4.5 billion) in new and refinanced lending towards 12 coal power projects. These were Rural Electrification Corporation, SBI, IIFC, Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank, and Power Finance Corporation.
Over 70% of lending for coal was refinancing of existing debt for projects that have already been built or are under construction. SBI, among other public banks, financed ₹11,360 crores ($1,755 million) towards coal power projects whereas, for RE, it financed ₹2,162 crores ($323 million). In the financial year 2017, SBI wrote-off bad loans close to ₹20,339 crores ($3,019 million). The highest among all public sector banks.
In contrast to coal lending, half of the top 10 lenders to 60 renewable power projects (solar and wind) were commercial financial institutions such as L&T Finance Holdings, Yes Bank, IndusInd Bank, IDFC, PFS, as opposed to majority government-owned banks. 76% of RE project finance was primary finance and 24% was refinancing of existing project indicating a vast growth in new RE projects in 2017.
All the lending identified was concentrated in 14 states. Of these, only two attracted no renewables lending; Jharkhand and Uttar Pradesh. States with significant renewables lending such as Karnataka, Punjab, Tamil Nadu and Telangana had no coal lending. Projects in Uttarkhand and Odisha received minimal lending overall, with no loans to coal-fired power projects and little to renewables.
In states such as Gujarat, renewables lending outpaced coal lending more than four-fold. In most other states with both coal lending and renewable energy lending, coal lending was higher than renewable lending. Chhattisgarh provides an extreme example, where coal-fired power projects attracted almost 10 times that of renewables projects in 2017.
The earlier CFA study, ‘Coal Currency’, mapped lenders of 125 projects, with a total capacity of 243 GW. Out of a total available data of ₹4,82,648 cr, ₹51,026 cr or 11% were financed by 22 international financial institutions, while the 89% or ₹4,31,622 cr. was financed by 51 national financial institutions – which include non-banking institutions, public and private commercial banks.