Lenders should create a common pool of bankable green/sustainable projects so that the entire ecosystem can benefit, according to Reserve Bank of India (RBI) Governor Sanjay Malhotra.
This will help them overcome capacity and expertise constraints, which limit lenders ability to appraise and thus finance climate change mitigation.
“One of the oft-cited constraints to adequate flow of climate related finance has been the lack of bankable projects.
“Capacity and expertise constraints limit the ability to appraise and thus finance climate change mitigation. It also enhances the risk of funding such projects,” Malhotra said in his keynote address at the Policy Seminar on Climate Change Risks and Finance organised by RBI in New Delhi.
Bankable projects: Create common pool
Thus, creation of a common pool of such bankable projects will have multi-fold benefits for the entire ecosystem.
The Governor underscored that Regulated Entities (REs or lenders) with experience of such projects can contribute to the pool for the benefit of others, while also benefiting from such information shared by other REs.
“This will help share knowledge for benefit of all. There is a need for collaboration in this emerging and evolving area. I urge the REs to seriously consider setting up such a pool through an appropriate institutional arrangement,” he said.
Malhotra emphasised that lenders need to develop suitable capacity and technical know-how to better appraise risks in financing projects which use green technologies.
He made the aforementioned observation as one of the important aspects of green financing/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.
He said a guidance note on “Climate Scenario Analysis and Stress Testing” is being developed for the REs.
Malhotra noted that as technology and finance have a critical role in the transition towards a low-carbon economy, there is a need to build innovative solutions and capabilities in these areas.
“The RBI has been encouraging and facilitating innovations through its Regulatory Sandbox and Hackathon initiatives in the fintech space.
“We propose to set up a dedicated “on Tap” cohort on climate change risks and sustainable finance under RBI’s Regulatory Sandbox initiative. We are also planning to conduct a special “Greenathon” on climate change and related aspects,” Malhotra said.
