Blitz Bureau
NEW DELHI: India has taken the lead in providing finance to renewable energy projects by including them in “priority sector lending” to accelerate the country’s transition to a low carbon economy in the fight against climate change.
Addressing a policy seminar on Climate Change Risks and Finance, RBI Governor Sanjay Malhotra said, “Central Banks in Advanced Economies have traditionally followed an asset neutral approach. Central Banks in emerging markets and developing economies, on the other hand, have adopted directed lending policies to channelise credit to certain sectors of their economies given their individual country circumstances and developmental objectives.
Malhotra highlighted that India’s priority sector lending guidelines facilitate credit to be channelled to renewable energy. “We have included finance to small renewable energy projects – solar, biomass based, windmills, micro-hydel plants and non-conventional energy based public utilities viz. street lighting systems, and remote village electrification projects as part of priority sector lending,” he said.
The RBI Governor pointed out that while the role of the Central Banks in managing risks posed by climate change to the financial system is increasingly being recognised, their role in facilitating the financing of green and sustainable transition has been a matter of debate and has varying dimensions to it.
Malhotra said that as a Central Bank, the Reserve Bank is mindful of its role in addressing and mitigating risks to the financial system from climate change. In this context, endeavour has been to play the role of a facilitator – including 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 due to borrowers’ use of new and emerging green technologies, which have relatively limited track record in terms of reliability, efficiency, and effectiveness. Regulated Entities, therefore, need to develop suitable capacity and technical know-how to better appraise risks in financing projects which use such green technologies,” Malhotra said.
