2021-22Annual Report
Federal Bank, being an environmentally and socially responsible institution, has mapped the way forward towards a greener, resilient future. Focused on this, we have established an Environmental and Social Management System (ESMS) Policy to guide our actions in profiling all financing through the E&S risk lens. ESMS activities are monitored by E&S Committee chaired by Managing Director & CEO. Further, trainings, webinars and workshops are being conducted to build employee capacity.
Our focus is on phasing out coal-related subproject exposure and building a green portfolio by financing firms / projects in energy efficiency, renewable energy, climate-smart agriculture, green buildings and waste management. This will provide significant business opportunity as well as mitigate risks related to climate change.
Federal Bank has become the first in the country to receive funding from Washington headquartered IFC in Greening Equity Approach. This investment of ₹ 916 Crore along with the climate expertise of IFC will help us in driving our sustainability agenda.
MSMEs are India’s lifeblood, contributing to ~30% of its GDP and accounting for majority of employment. At Federal Bank, we have always been a key supporter of MSMEs by lending advances to this underserved segment. As on March 31, 2022, MSME financing accounted for 12.75% of our total loan book. We intend to retain our focus on this segment and enhance advances share to MSME sector in addition to enabling them with digital support.
In our effort to finance green projects, we have introduced the concept of ‘Green Deposits’. Under this, fixed deposit (FD) can be made for period of 2,222 days at specialized interest rates, and the funds sourced would be used for financing renewable energy, green building, smart agriculture and water or waste management projects among others. It will provide our retail and corporate customers an opportunity to contribute towards a better planet. As of March 31, 2022, we opened 3,674 Green Deposit accounts garnering a total deposit of ₹265 Crore.
We are supporting both corporate clients and retail borrowers transition to greener business models. We assist retail customers in buying electric vehicles by offering attractive interest rate. Corporate clients are provided financing for green building development, renewable energy and climate special projects at incentivized rates. As on March 31, 2022, our green financing loan book stood at ₹2,502 Crore and we intend to increase it to ₹13,000 Crore by FY25.
We have identified certain sectors that have negative impact on the environment and society as exclusion activities. Our intent is to desist making fresh project exposures to these sectors including Coal-based power plants and coal mines and eventually reduce overall exposures in them. Our exposure to coal-related sub project as of March 31, 2022 stood at 1.87% of gross advances. We intend to reduce this to NIL by December 2030.
of green deposits
of green lending
Our sustainability focus serves multiple purpose: environment sustainability, mitigating E&S risks and providing incremental business opportunities. With government and corporates making significant investments in these areas, a large part of future financing opportunities are expected to come from such activities. Federal Bank being amongst the few to have initiated this journey early on, we expect to reap the benefit from headstart.
Government of India (GoI) has set an ambitious target to achieve 50% clean energy share by increasing renewable energy generation capacity to 500 gigawatt (GW) by 2030 from the levels of 39% share of 151 GW generation capacity as on December 2021.
Emission from vehicles is a major source of greenhouse emissions especially in India. Globally, the industry is witnessing a fundamental shift from internal combustion engine (ICE) based vehicles to Electric Vehicle (EV). As per an analysis by NITI Aayog and Rocky Mountain Institute, India’s EV market has the potential to reach US$152.2 billion by 2030 with more than 80% of two- and three-wheelers and 50% of the country’s four-wheelers being electric vehicles.
Energy use from buildings in India is estimated at over 40% of the total energy consumption, and is growing 8% annually.
With more than 70% of the buildings required in India by 2030 yet to be constructed, there is a significant opportunity to evolve towards green buildings and address climate change. Initiation of projects like the Green Rating for Integrated Habitat Assessment (targeted at using 30% less resources and incentives by various State Governments) as well as BREEAM (Building Research Establishment Environmental Assessment Method) and LEED (Leadership in Energy and Environmental Design) are likely to drive green building developments.
Energy efficiency has been identified as one of the most cost-effective ways and a key driving force in environmental and climate goals, and is gaining traction in India. A National Mission for Enhanced Energy Efficiency (NMEEE) has been institutionalised as one of the eight national missions under the National Action Plan on Climate Change (NAPCC). Multiple programs in this direction are opening significant opportunities. This include Perform Achieve and Trade (PAT) whereby industries are required to conduct energy audits to identify ways for reduction.