Incentivizing Green Financing in India

Incentivizing Green Financing in India


Banks plan to request the Reserve Bank of India (RBI) to incentivize green financing by considering it as priority sector lending (PSL) irrespective of loan limits, or by excluding infrastructure sector exposure from overall credit when calculating annual PSL targets.

  • Currently, there is a cap of ₹30 crore for the inclusion of renewable energy (RE) projects under PSL, as noted by SBI DMD Surender Rana at the IMC Chamber of Commerce and Industry’s Annual Banking & Finance Conference.
  • Larger banks, which often finance large infrastructure projects, find it challenging to meet PSL targets, unlike smaller banks that do not engage in infrastructure financing to the same extent.

GS-02 (Economy)

Green Finance:

  • Definition: Green finance refers to the financing of investments that provide environmental benefits within the context of environmentally sustainable development, as outlined in the G20 Green Finance Synthesis Report.

Benefits of Green Finance:

  • It involves prioritizing eco-friendly initiatives over conventional corporate investments to ensure sustainability.
  • The benefits of green financing include reductions in air, water, and land pollution, lower greenhouse gas emissions, and improved energy efficiency.
  • This emphasis on green finance not only enhances transparency but also ensures a consistent stream of investments toward environmental objectives.
  • As a result, this strategy will generate more employment and business opportunities, ultimately leading to better living standards and sustainable development without jeopardizing nature.

Sovereign Green Bonds?

  • Sovereign Green Bonds (SGrBs) represent a pioneering financial instrument designed to channel investments into environmentally sustainable projects.
  • These bonds, issued by the Indian government, serve as a vehicle for funding initiatives aimed at mitigating climate change, promoting renewable energy adoption, and enhancing environmental resilience.
  • By earmarking funds exclusively for green projects, SGrBs play a crucial role in aligning financial markets with environmental objectives and fostering a transition towards a greener economy.