State Bank of India (SBI), the country’s biggest lender, hasn't yet cleared the ₹5,000 crore credit facility to Adani group’s controversial Carmichael coal mine project in Queensland, Australia.
“The exposure will be subject to approvals from the local government, and independent vetting by professionals so that the rules are in order,” says SBI chairman Dinesh Khara in an exclusive interview with Fortune India.
The credit facility was to be extended to Adani's Australian mining company, Bravus Mining & Resources. If the facility is not extended, it will be the second instance of India's biggest banker backing off from a credit facility to the project after it had to scrap a memorandum of understanding it had entered into in 2014 for a $1 billion loan. That proposal, under the tenure of the-then chairperson Arundhati Bhattacharya, was junked after it became a political hot potato.
SBI has been under pressure from climate-conscious investors such as Amundi and AXA to scuttle the ₹5,000 crore loan after reports of the loan became public last year. In November 2020, Amundi had written to the bank stating that if the lender did not reverse its decision it would sell the bank’s bond holdings held in its green fund Amundi Planet Emerging Green One, launched in 2018 in partnership with the International Financial Corporation. Ranked among the top 10 globally, Amundi is Europe's largest asset manager with a portfolio of euros 1.76 trillion.
Though Khara did not comment on whether the bank had communicated back to the investor, Amundi sold off the bank’s bond holdings, worth $20 million, by December 2020. Interestingly, Amundi holds 37% stake in SBI’s mutual fund business which is slated to go public.
While Amundi did not respond to a questionnaire sent by Fortune India, the move is in line with the asset manager’s charter to promote integrity and environmental additionality of the green bond market. “This charter requires to assess in any investment case, the green bond issuance according to both, green bond-level analysis and the issuer-level analysis. Green bond holdings are then monitored to ensure no direct or indirect exposure to environmentally high-risk and carbon intensive sectors,” an Amundi spokesperson told Asset News.
Following Amundi, in December 2020, Bram Bos, a lead portfolio manager with NN Investment Partners for its green bonds, through a post on Linkedin, announced that the firm had downgraded the bonds of ‘a large Indian bank’ as non-green, which makes them ineligible for the asset manager’s green bond portfolios. A report by Citywireselector mentioned that Bos in his post wrote that although the bank had issued “green” bonds, they seem to be granting a loan for the financing of the Carmichael coalmine. “Even if they would not go ahead with the controversial loan, the bank’s policies are not supportive to help us move to clean energy in the future and makes their green bond a form of “greenwashing” in our view. What is also very disturbing is their lack of openness and unwillingness to engage with investors!,” Bos said in the post.
While Bos replied to Fortune India saying, “we are not able to comment on any companies and/or holdings in our portfolios”, Khara said the Rs 5000 crore facility is not a loan but a SLC [standby line of credit]. “We are not funding it. The funding has to be done by some other bank,” says Khara. SLC is non-fund based facility offered by a bank under which it earns a fee income.
Khara says only if approval from the local governments comes through and is also independently vetted by professionals, only then “our SLC gets into action”. He goes to add that the bank is also distancing itself from SLCs “because somebody else will have to monetise that SLC.”
In fact, another French asset manager, AXA Investment Managers, too, had sold off SBI’s bonds in November 2020 held under the AXA WF Global Green Bond fund. “After having reviewed SBI’s environmental practices, we noticed their potential involvement in the Carmichael coal project in Australia, ‘We were concerned with this kind of developments that we consider not aligned with the necessary energy transition,’ an spokesperson told CitywireSelector.
Though green conscious investors are voting with their feet, Khara, however, believes conventional sources of energy such as thermal will continue to be in play and will need to be funded by banks, especially for an economy such as India. “Ours is a transitioning economy. Thermal is a reality for us, we cannot wish away thermal. If at all industrial growth has to happen we have to continue for some more time. If thermal is there, then mining is also there,” says Khara.
However, Khara qualifies his view adding that the bank’s objective is also to be carbon neutral: “We have already indicated that we are supporting these activities [conventional energy funding] but at the same time we realise that we have to move towards the renewal energy also.”
Though Khara does not divulge the quantum of renewable funding done by bank, in 2016 SBI had entered into an agreement with the World Bank for a $625 million facility to support grid connected rooftop solar programme in the country and again in 2017, along with the World Bank, it had announced $357 million in credit facilities for seven solar companies to develop grid-connected solar rooftop projects with an aggregate capacity of 575 MW.
Meanwhile, though the Adani Carmichael project has faced stiff opposition over the issue of carbon emissions and damage to the coral reefs, Adani group has managed to commercialise operations at the mine in June this year. Envisaged in 2010 with an outlay of A$16.5 billion, including the construction of a railway line connecting an Australian port to the mine, the project size was subsequently scaled down to A$2 billion. The mine, which will produce 10 million tonnes of coal per year, will ship most of its coal to India.