New Delhi: RBI Deputy Governor M Rajeshwar Rao on Monday emphasized on the need to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions. He added that it is simultaneously important to balance the needs of credit expansion, economic growth and social development. Green finance can apparently be defined as financing of investments that deliver environmental benefits in the broader context of environmentally sustainable development.
Addressing the the CAFRAL Virtual Conference on Green and Sustainable Finance, Mr Rao said, “Climate risks can impact the financial sector through two broad channels; first – physical risks which mean economic costs and financial losses resulting from the increasing severity and frequency of extreme weather events and long-term climate change and second – transition risks which arise as we try to adjust towards a low-carbon economy.”
He stated that the fight against climate change is certainly a task for the global economy, society, and its institutions – including central banks.
Commenting on sustainable finance and role of RBI in a dynamic world, he said, “The Reserve Bank of India’s mission (Utkarsh 2022) statement encompasses universal access to financial services and a robust, dynamic and responsive financial intermediation infrastructure and recognizes the importance of active and receptive financial intermediation. As the economy and financial system are not static, we need to appropriately respond to the changes around us. We also need to proactively consider new and emerging risks and opportunities while delivering monetary and financial stability in a time consistent manner.”
He added that the Reserve Bank had already advised banks in 2007 to put in place an appropriate action plan towards making a meaningful contribution to sustainable development. In 2012, RBI included loans sanctioned by banks directly to individuals for setting up off-grid solar and other off-grid renewable energy solutions for households and in 2015, the PSL (Priority Sector Lending) criteria was expanded to bank loans up to a limit of Rs 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, among others. In 2020, the above limit for bank loans was doubled to Rs 30 crore.”
The Reserve Bank Deputy Governor also mentioned that the global understanding of systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.
Mr Rao further said that “the private and the public sector need to build on early progress.”