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Banks to request RBI to incentivize green financing

June 17, 2024
Banking & Finance

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Call to consider this category of lending, irrespective of loan limit, as priority sector lending. Banks plan to request the Reserve Bank of India (RBI) to incentivise green financing, including considering this category of lending, irrespective of loan limit, as priority sector lending (PSL) or excluding infrastructure sector exposure from overall credit for the purpose of arriving at annual PSL target. Green finance is defined as financing of investments that deliver environmental benefits in the broader context of environmentally sustainable development, according to G20 Green Finance Synthesis Report.

The environmental benefits of such financing include reduction in air, water and land pollution, reductions in greenhouse gas emissions and improved energy efficiency. It is noted that currently, there is a cap of ₹ 30 crores for inclusion of renewable energy projects included under PSL.

Smaller banks are able to achieve the priority sector lending target because they are not into infrastructure financing, adding that for bigger banks, which finance large infrastructure projects to support the economy, becomes a bit of a challenge.  It is reasoned that for bigger banks the base for arriving at the annual PSL target increases every year as they finance large projects. PSL guidelines specify eight categories of priority sectors viz. (i) Agriculture; (ii) MSME; (iii) Export Credit; (iv) Education; (v) Housing; (vi) Social Infrastructure; (vii) Renewable Energy; and (viii) Others. Banks have to achieve PSL target of 40 per cent (of previous year’s of Adjusted Net Bank Credit or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher as on March-end of previous year).

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