The Hindu Business Line : Banks find carbon financing lucrative

Increased risks allow banks to earn higher margins as banks charge interest rates 1-3 per cent higher than for other projects, depending on the risk involved.

Priyanka Vyas

New Delhi, May 13 The high-risk, high-reward business of carbon financing has caught the attention of leading banks in the country. Some like ICICI, IDBI, HDFC and SBI are finding the financing of certified emission reduction (CERs) for companies bringing in increased opportunities.

Banks cite higher revenues and broadening of the product portfolio as key incentives to enter this market.

“There is a huge potential in financing carbon credit-related projects. However, there is also high risk involved since the market is future-based.

The risks include projects not being implemented in the manner they were envisaged or not being able to generate estimated CER revenues and even the uncertainty of prices crashing,” Mr B.K. Batra, Chief General Manager, IDBI, told Business Line.

He said that increased risks also allow banks to earn higher margins as banks charge interest rates 1-3 per cent higher than for other projects, depending on the risk involved.

Customer retention

GTZ International, a German carbon financing and procuring unit reckons the nature of deals as another reason for the growing opportunity in carbon financing.

“In China, European companies buying carbon credit enter into agreements at the beginning of the project and also provide finance for project development. But in India, since the project size is small, many companies are seeking finance from financial institutions,” said Mr K. Uma Maheswaran from the Carbon Procurement Unit, GTZ International Services.

HDFC Bank, one of the newer entrants in the market, says that the business of carbon financing helps in customer retention and enables the bank to become a player in the business, while bringing buyers and sellers together on the international platform.

Extension of services

“Financing of CDM projects becomes an extension of banking services that we provide to retain our customers. This also increases the scope for allied businesses,” said Mr P.V. Anantha Krishnan, Executive Vice-President and Country Head, Commodity Business, HDFC Bank.

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