New Delhi, Mar 15 (KNN) Reserve Bank of India (RBI) Governor Sanjay Malhotra has announced that India is spearheading initiatives in renewable energy financing by incorporating such projects under priority sector lending, a strategic move to accelerate the nation’s transition to a low-carbon economy in its ongoing battle against climate change.
Speaking at a policy seminar focused on Climate Change Risks and Finance, Malhotra highlighted the divergent approaches between central banks in advanced economies and those in emerging markets.
He noted that while advanced economy central banks typically adhere to asset-neutral policies, central banks in emerging markets and developing economies have implemented directed lending strategies to channel credit toward specific sectors based on national circumstances and developmental objectives.
Malhotra elaborated that India’s priority sector lending guidelines have been specifically designed to facilitate credit flow to renewable energy initiatives.
These guidelines encompass financing for small renewable energy projects, including solar installations, biomass-based systems, windmills, micro-hydel plants, and non-conventional energy-based public utilities such as street lighting systems and remote village electrification.
The Governor acknowledged that while central banks’ role in managing financial risks posed by climate change is increasingly recognised, the extent of their involvement in facilitating green and sustainable transitions remains a subject of ongoing debate with multiple perspectives.
He emphasised that the Reserve Bank remains committed to addressing and mitigating climate-related risks to the financial system, focusing primarily on acting as a facilitator by supporting capacity building and creating a conducive regulatory framework for promoting sustainable finance.
Malhotra identified a significant challenge in green lending: the elevated credit risk associated with borrowers utilising new and emerging green technologies that have limited track records regarding reliability, efficiency, and effectiveness.
Consequently, he stressed that regulated entities need to develop specialised expertise and technical knowledge to better assess the risks inherent in financing such projects.
Addressing data constraints in climate-related financial risk modeling, the Governor revealed that the RBI had announced the creation of the Reserve Bank – Climate Risk Information System (RB-CRIS) in October last year.
This repository aims to bridge existing data gaps by providing standardised datasets for physical risk assessment and transition risk evaluation, with its launch expected later this year.
Malhotra underscored the pivotal role of technology and finance in facilitating the transition toward a low-carbon economy.
To foster innovation in this domain, he announced plans to establish a dedicated ‘on-tap’ cohort focused on climate change risks and sustainable finance under the RBI’s Regulatory Sandbox initiative, alongside preparations for conducting a special ‘Greenathon’ centered on climate change challenges.
The Governor also noted global progress in assessing and disclosing climate-related risks, mentioning that international organisations such as the International Sustainability Standards Board under the IFRS Foundation have introduced climate-related disclosure standards.
Additionally, the Basel Committee on Banking Supervision has released a consultative document aimed at integrating climate risk considerations into the Basel framework’s Pillar III disclosure requirements.
In conclusion, Malhotra revealed that the Reserve Bank has already issued draft guidelines on the Disclosure Framework for Climate-Related Financial Risks in February 2024 for public consultation.
The RBI is currently finalising these guidelines based on feedback received and is developing a guidance note on Climate Scenario Analysis and Stress Testing for regulated entities to further strengthen the financial sector’s resilience to climate-related risks.
(KNN Bureau)
