Banks go aggressive on green finance through partnerships, deposit schemes

The Reserve Bank of India (RBI), on April 1, announced the framework for acceptance of green deposits to foster and develop a green finance ecosystem in the country.

Upon finding an opportunity and being nudged by the banking regulator, some banks are taking a closer look at the green finance business. Banks are either opting for partnerships or exploring individual products to establish a business model.

Banks like Canara Bank, Bank of Maharashtra, IDFC First Bank, Federal Bank, and HSBC India have partnered with different companies and service providers or built specific individual products.

For example, the Bank of Maharashtra and the Indian Renewable Energy Development Agency (IREDA) partnered in September 2023 to work on lending more to the renewable energy sector. The bank, alongside IREDA, plans to work on co-lending and loan syndication for a diverse spectrum of renewable energy projects.

Canara Bank, in August 2023, issued a policy framework to lend aggressively in green deposits and other facilities.

Also read: Federal Bank to soon come up with a policy on green deposits

Finance Minister Nirmala Sitharaman launched HSBC India’s partnerships with the Indian Institute of Technology, Bombay (IIT-B) and the Shakti Sustainable Energy Foundation (SSEF) in August 2023 to enable innovation in green hydrogen.

Other than partnerships, some banks have worked on separate green deposit policies. Moneycontrol had in July 2023 reported that the lender will work and launch a green deposit policy. Additionally, AP Hota, Chairman, Federal Bank, said at the 92nd annual general meeting (AGM) of the lender that the bank is working to go aggressive on green financing.

Similarly, IDFC First Bank is in the process of working on and rolling out a green deposit policy soon.

“We are working on a green deposit policy,” a source aware of the matter said.

Also read: Green finance: Banks, NBFCs looking for greater promotion of schemes, financial support from govt, RBI

Why be aggressive in green finance?

The Reserve Bank of India (RBI), on April 1, announced the framework for acceptance of green deposits to foster and develop a green finance ecosystem in the country.

The framework that came into effect on June 1, 2023, is intended to encourage banks and NBFCs to offer green deposits to customers, protect the interests of the depositors, aid customers in achieving their sustainability agenda, address greenwashing concerns, and help augment the flow of credit to green activity projects.

After this, several banks have worked on partnerships and are lending more to renewable and other green projects. For example, Canara Bank has various products under the sustainable financing segment in the renewable energy projects, compressed biogas and energy conservation scheme, solar pump scheme under Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM), etc. Similarly, the bank has a green wheels scheme for e-vehicles and Rs 6,000 crore of assets under management (AUM) for sustainable projects.

Additionally, the latest RBI’s sectoral credit data showed that bank credit to renewable energy projects, a part of the larger green finance segment, jumped 6.9 percent to Rs 4,532 crore in July 2023 from Rs 4,239 crore in July 2022.

Here, experts highlighted that banks have been lately looking at lending more to green finance as the segment has seen good demand across industries.

“From vehicle finance like e-vehicles to renewable projects, demand for credit has been high across industries. Hence, banks have been lending more,” said Varun Sharma, Director, Advisory, FinAccountants.
Additionally, Jindal Haria, Associate Director, India Ratings and Research, said that banks are also trying to learn and understand the credit behaviour of the segment.

“Green finance is new in India for banks. Understanding the credit cycle of the sector is where banks are focusing too,” Haria said.