A majority of government-owned banks and financial institutions continued to fund coal projects in India in 2017, an analysis of energy project lending said on Tuesday.

It also reveals that comparatively, private financial companies are investing more in renewable energy projects compared to coal.

The report ‘Coal vs Renewables Finance Analysis’ by the Delhi-based Centre for Financial Accountability (CFA) finds that coal received Rs 60,767 crore ($9.35 billion) in lending whereas renewable energy received Rs 22,913 crore ($3.50 billion).

“It seems like the government and public financial institutions are living in a bubble devoid of market forces,” CFA Executive Director Joe Athialy said in a statement.

“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.”

The report identifies and reviews project finance lending to 72 energy projects, comprising of coal-fired power stations and renewable energy generation facilities in India that reached financial close in 2017.

These projects attracted total lending of Rs 83,680 crore ($12.85 billion).

Of the top 10 lenders to coal power projects, eight were majority government-owned banks that collectively gave close to Rs 30,337 crore ($4.5 billion) in new and re-financed lending towards 12 coal power projects.

These were Rural Electrification Corporation, the State Bank of India, India Infrastructure Finance Company, Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank and Power Finance Corporation.

Over 70 per cent of lending for coal was re-financing of existing debt for projects that have already been built or are under construction.

The SBI, among other public banks, financed Rs 11,360 crore ($1,755 million) towards coal power projects and Rs 2,162 crore ($323 million) for renewable energy.

In the financial year 2017, SBI wrote-off bad loans close to Rs 20,339 crore ($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 and IndusInd Bank as opposed to majority government-owned banks.

As much as 76 per cent of renewable project finance was primary finance and 24 per cent was re-financing of the existing project, indicating a vast growth in new renewable 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 Uttarakhand 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.

Of a total available data of Rs 4,82,648 crore, Rs 51,026 crore or 11 per cent, were financed by 22 international financial institutions, while 89 per cent or Rs 4,31,622 crore, was financed by 51 national financial institutions, which include non-banking institutions, public and private commercial banks.

“The CFA report clearly identifies that commercial banks are underpinning and supporting the transformation, but state banks are lagging, probably reflecting their history of excessive and poor lending practices to the thermal power sector,” Tim Buckley, the Energy Finance Studies Director with the US-based Institute for Energy Economics and Financial Analysis, told IANS.

It is definitely a timely reminder for India’s leading public banks to reduce stranded asset risk and endorse India’s global leadership role in accelerating the electricity sector modernisation, he added.

India’s National Electricity Plan 2018 calls for new generation and grid investments of $30-40 billion annually.

The story, published in The Economic Times, can be accessed here.

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