THE ESG–PROFITABILITY NEXUS: GREEN LENDING PRACTICES IN THE INDIAN PRIVATE BANKING SECTOR

Abstract

This study examines the relationship between green lending, ESG disclosure, and financial performance in Indian private sector banks from FY 2018–19 to FY 2022–23. Using secondary data from annual reports, ESG/BRSR filings, and standalone financial statements, the research evaluates trends in sustainable lending practices and their impact on Return on Assets (ROA), Return on Equity (ROE), and net profitability. The study focuses on four major banks—Kotak Mahindra Bank, IDFC First Bank, Axis Bank, and Yes Bank—selected for their consistent reporting and role in the private banking sector. Results indicate that while green lending as a percentage of total advances remains relatively low (under 1.5% for most banks), the quality of ESG disclosure has improved significantly, particularly after SEBI introduced the BRSR framework. No strong direct correlation was found between green lending and profitability in the short term; however, banks with more structured ESG practices and transparent reporting, such as Axis Bank and IDFC First Bank, demonstrated more stable financial performance and reputational benefits over time. These findings underscore the need for standardized green finance definitions, regulatory incentives for green loans, and uniform ESG disclosure norms, concluding that ESG integration holds potential for long-term financial and environmental sustainability, even though short-term financial impacts remain modest.