Climate change has become a systemic risk to financial stability and banks have become important actors in risk mitigation and sustainable development. This paper discusses how the functions of Indian commercial banks and development finance institutions, especially NABARD and SIDBI have changed in the context of coping with climate-related financial risks. Institutions, that is, NABARD and SIDBI, in the context of coping with climate-related financial risks. Based on the panel data between 2012 and 2022, the analysis employs both econometric modeling and stress testing to measure the effect physical risks on major performance indicators, such as return on assets (ROA), non-performing assets (NPAs), and credit disbursement patterns, such as extreme weather events and transition risks (e.g., policy changes and carbon pricing). Results show that commercial banks have begun to build in ESG criteria and climate-sensitive lending behaviours, but nonetheless face considerable exposure to physical climate shocks and especially in the areas of agriculture, energy, and infrastructure. Conversely, development banks are becoming more resilient and oriented in proactive direction to finance long-term adaption and green infrastructure. Are becoming more resilient and have a proactive orientation toward long-term financing adaptation and green infrastructure. Nevertheless, there are still issues related to standardization of the data, climate risk disclosure and harmonization of the regulations as to the data standardization, climate risk disclosure, and harmonization of regulations. This study sheds light on the comparative effectiveness of the strategies by climate risks in Indian banking sector and the necessity to have a concerted policy action, capacity, and blended finance models to harmonize banking practices to national climate objectives.