India Leads in Financing Green Energy Projects: RBI Governor
India has taken the lead in financing renewable energy projects by including them in priority sector lending, accelerating the country’s transition to a low-carbon economy and strengthening the fight against climate change, according to RBI Governor Sanjay Malhotra.
New Delhi: India has taken the lead in financing renewable energy projects by including them in priority sector lending, accelerating the country’s transition to a low-carbon economy and strengthening the fight against climate change, according to RBI Governor Sanjay Malhotra.
Table of Contents
Central Banks and Directed Lending Policies
Speaking at a policy seminar on Climate Change Risks and Finance, Malhotra noted that while Central Banks in Advanced Economies follow an asset-neutral approach, emerging markets and developing economies implement directed lending policies to ensure credit reaches key sectors based on country-specific developmental objectives.
Renewable Energy Projects Under Priority Sector Lending
India’s priority sector lending guidelines now facilitate financing for various small renewable energy projects, including:
- Solar energy projects
- Biomass-based energy
- Windmills
- Micro-hydel plants
- Non-conventional energy utilities (such as street lighting systems and remote village electrification projects)
RBI’s Role in Green and Sustainable Finance
The RBI Governor emphasized that while Central Banks are now being recognized for managing climate-related financial risks, their role in facilitating sustainable financing remains an area of debate.
As a regulator, the RBI aims to:
- Support capacity building
- Foster a conducive regulatory framework
- Facilitate green and sustainable finance
Challenges in Green Lending and Risk Assessment
Malhotra highlighted higher credit risks in green lending due to the use of emerging technologies, which often lack a strong track record in terms of reliability, efficiency, and effectiveness. He urged regulated entities to develop technical expertise for better risk assessment in green finance projects.
Reserve Bank – Climate Risk Information System (RB-CRIS)
Recognizing the data constraints in assessing the financial impact of climate change, the RBI announced the creation of the Reserve Bank – Climate Risk Information System (RB-CRIS) in October 2023.
This repository will provide standardized datasets, including:
- Hazard data
- Vulnerability data
- Exposure data
- Sectoral transition pathways
- Carbon emission intensity database
Innovations and Green Finance Initiatives
Malhotra stressed that technology and finance play a crucial role in transitioning to a low-carbon economy. The RBI is encouraging innovation through:
- Regulatory Sandbox initiatives
- Hackathons in the Fintech sector
- A dedicated “On-Tap” cohort on climate change risks
- A planned “Greenathon” focused on climate-related challenges
Climate Risk Disclosures and Regulatory Developments
Several international regulatory bodies, such as the International Sustainability Standards Board (ISSB) and the Basel Committee on Banking Supervision (BCBS), are working on climate-related risk assessments and disclosures.
The RBI has already issued:
- Draft guidelines on Disclosure Framework on Climate-Related Financial Risks (February 2024)
- A forthcoming guidance note on Climate Scenario Analysis and Stress Testing
The guidelines are currently being finalized based on public feedback, Malhotra confirmed.
India’s Green Finance Future
With its proactive green financing policies, RBI initiatives, and climate risk assessments, India is positioning itself as a global leader in sustainable finance.
Stay Updated
For more updates on green finance, RBI policies, and climate risk management, stay tuned.
