India has taken the lead in financing green energy projects: RBI

India has taken the lead in financing renewable energy projects by including them under priority sector lending to accelerate the country’s transition to a low-carbon economy in its fight against climate change. Addressing a policy seminar on Climate Change Risks and Finance in New Delhi on Thursday, RBI Governor Sanjay Malhotra said, “Central banks in advanced economies have traditionally followed an asset-neutral approach. However, central banks in emerging markets and developing economies have adopted directed lending policies to channel credit to certain sectors, considering their specific national circumstances and developmental objectives.”
He highlighted that India’s priority sector lending guidelines facilitate credit flow to renewable energy projects. “We have included financing for small renewable energy projects—such as solar, biomass-based, windmills, micro-hydel plants, and non-conventional energy-based public utilities like street lighting systems and remote village electrification—under priority sector lending,” Malhotra stated.
The RBI Governor pointed out that while the role of central banks in managing financial risks posed by climate change is increasingly recognized, their involvement in facilitating the financing of green and sustainable transitions remains a subject of debate, with multiple perspectives on its scope. Malhotra emphasized that the Reserve Bank is committed to addressing and mitigating climate change risks to the financial system. In this regard, its focus has been on acting as a facilitator by supporting capacity building and fostering a conducive regulatory framework for promoting green and sustainable finance.
“One important aspect of green lending for sustainable finance is the higher credit risk associated with borrowers using new and emerging green technologies, which have a relatively limited track record in terms of reliability, efficiency, and effectiveness. Therefore, regulated entities need to develop the necessary expertise and technical know-how to better assess risks associated with financing such projects,” he said. He further explained that climate-related financial risk modeling is highly data-intensive, yet there is limited available data to measure the financial impact of climate change. To address these constraints, the RBI announced the creation of the Reserve Bank – Climate Risk Information System (RB-CRIS) in October last year.
The RBI Governor also emphasized the critical role of technology and finance in the transition toward a low-carbon economy, underscoring the need for innovative solutions in these areas. He noted that the Reserve Bank has been actively promoting innovation through its Regulatory Sandbox and Hackathon initiatives in the fintech sector. “We plan to establish a dedicated ‘on-tap’ cohort on climate change risks and sustainable finance under the RBI’s Regulatory Sandbox initiative. Additionally, we are preparing to conduct a special ‘Greenathon’ focused on climate change and related challenges,” he announced.