New Delhi: RBI Deputy Governor Rajeshwar Rao on Monday stressed the need to mainstream green finance and consider ways to incorporate 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 the financing of investments that provide environmental benefits in the broader context of environmentally sustainable development.
Addressing CAFRAL’s virtual conference on green and sustainable finance, Mr. Rao said: “Climate risks can impact the financial sector through two major channels; first – physical risks which mean economic costs and financial losses resulting from the increasing severity and frequency of extreme weather conditions. long-term events and climate change and the second transition risks that arise as we try to adjust to a low-carbon economy. ”
He said tackling climate change is certainly a task for the global economy, society and its institutions – including central banks.
Commenting on sustainable finance and the role of RBI in a dynamic world, he said: “The Reserve Bank of India’s mission statement (Utkarsh 2022) encompasses universal access to financial services and an infrastructure of robust, dynamic and responsive financial intermediation and recognizes the importance of a responsive and responsive financial intermediation. Since the economy and the financial system are not static, we must respond appropriately to the changes around us. We also need to proactively take into account new and emerging risks and opportunities while ensuring monetary and financial stability over time. “
He added that the Reserve Bank had already advised banks in 2007 to put in place an appropriate action plan to make a significant contribution to sustainable development. In 2012, the RBI included loans sanctioned by banks directly to individuals for the implementation of off-grid solar solutions and other off-grid renewable energy solutions for households and in 2015, the PSL (Priority Sector Lending) have been extended to bank loans up to a limit of Rs 15 crore to borrowers for such purposes as solar power generators, biomass power generators, wind turbines, among others. In 2020, the above limit for bank loans was doubled to Rs 30 crore. “
The Deputy Governor of the Reserve Bank also mentioned that the global understanding of the systemic impact of climate change on the economy and the financial system as well as its resulting impact on financial stability is evolving and, as a result, the responses of central banks and supervisors around the world have also developed.
Mr. Rao added that “the private and public sectors must build on the first progress.”