India Considers Green Finance Framework to Boost Sustainable Lending

The Indian government is in discussions with various banks to create a Green Finance Framework that would reduce the cost of lending to the sector. The Reserve Bank of India (RBI) had previously announced a framework for accepting green deposits, and now the government is exploring how to lower the capital cost for lending. A finance ministry official confirmed that talks with lenders were underway, although they were still at a preliminary stage. The proposed framework would bring down the cash reserve ratio and statutory liquidity ratio, reducing capital needs for banks. The government is also seeking a broader
policy to promote green finance, which could include updating the Basic Statistical Return (BSR) seven-digit code to include green lending.

The banks have suggested that loans for electric vehicles and green hydrogen be included under priority sector lending, which would enable them to align their lending practices with global benchmarks. Some foreign banks operating in India are particularly keen on this proposal as it would help them achieve their mandated PSL targets. The government of India floated sovereign green bonds in FY23 to mobilize resources for green infrastructure and more green bonds are expected in the second half of the fiscal year. By introducing these measures, India hopes to foster and develop a green finance ecosystem in the country.

Re-reported from the story originally published in India English