Water risks threaten banks, states report

Close to 40% of the gross credit exposure of Indian banks is in sectors where water risks are significant, according to a report.

The report ‘Hidden Risks and Untapped Opportunities: Water and the Indian Banking Sector’ – published by WWF-India states that with India continuing to face severe pressure on its water resources, a new WWF report published on Thursday outlines the increasing water risks for businesses that could lead to significant losses for the country’s banks.

Launched with the Indian Banks’ Association (IBA), the WWF report provides evidence for why water presents a material risk for banks in India, particularly how 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.

Reeling under a crisis of non-performing loans with close to 10% of gross-advances of the Indian banks facing a risk of non-payment from debtors, these risks can place further liquidity constraints on the already stressed balance sheets of banks in India.

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.

Ravi Singh, Secretary General and CEO, WWF-India, said, “Water is central to sustaining a healthy and resilient planet. Banks, by the virtue of their influence as financial intermediaries, can play an important role by leveraging commercial capital to help in effective management of freshwater resources."

Water-related solutions also have the potential to be a source of significant commercial value for banks. The report presents the commercial opportunities for banks in solutions that promote sustainable water management. It also presents a practical guiding framework for banks, based on WWF’s Water Stewardship Ladder, to enable them to start integrating elements of the water thematic within their existing risk and opportunities framework.