Banks go big on renewables, reduce credit exposure to fossil fuel projects - ET BFSI (2024)

• Banking
• 3 min read

India is witnessing a significant shift in the financing landscape, with a decline in bank credit towards non-renewable energy sectors and a simultaneous rise in support for renewable energy projects. According to the recent data released by the Reserve Bank of India (RBI), credit to petroleum, coal products, and nuclear fuels has experienced a year-on-year decline of 13% and a month-on-month decrease of 1% to reach Rs 1.31 trillion in January. Credit to mining and quarrying, including coal, also saw a 7% YoY and 5% MoM drop to Rs 54,123 crore.

In contrast, the credit extended to the renewable energy sector is on an upward trajectory, albeit from a lower base. The RBI's data reveals a 17% YoY and 11% MoM increase in credit to renewable energy sources, reaching Rs 5,404 crore in January.

Outstanding bank loans to the renewable energy sector in India have exhibited remarkable growth, surpassing a 100% year-on-year increase, signifying a robust trend in underwriting loans for renewable energy projects. Reserve Bank of India data reveals that outstanding bank loans to the sector more than doubled, reaching Rs 4,191 crore by the end of October 21, 2022, compared to Rs 2,073 crore a year earlier.

The surge in renewable energy loans is attributed to the increasing climate sensitivity of the nation. With surplus capacity in the conventional power sector and challenges faced by state distribution companies, there is a noticeable shift towards renewable energy. Bank of Baroda's Chief Economist, Madan Sabnavis, notes that power generators are increasingly turning to renewables, aligning with the sector's future aspirations.

The country has made substantial progress, installing a record-breaking 15 gigawatts of new renewable energy capacity in 2021-22, aligning with Prime Minister Narendra Modi's ambitious target of reaching 450 gigawatts by 2030.

Banks big on green finance

The State Bank of India (SBI), is actively exploring opportunities in the renewables and electric mobility sectors as part of its strategy to diversify its portfolio. In the preceding financial year, SBI achieved a significant milestone by dual-listing its green bonds valued at $650 million on the India International Exchange and the Luxembourg Stock Exchange.

The SBI in January raised $1 billion through a Syndicated Social Loan to cater to the domestic Environmental, Social, and Governance (ESG) financing market, the RBI data shows that bank lending has risen considerably.

Canara Bank has positioned itself as a key player in sustainable financing by offering a range of products dedicated to renewable energy initiatives. These include financing options for renewable energy projects, compressed biogas, and solar pump schemes under the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM).

Bank of Maharashtra joined forces with the Indian Renewable Energy Development Agency (IREDA) in September 2023 to bolster lending in the renewable energy sector. The collaboration envisions co-lending and loan syndication for a diverse array of renewable energy projects.

Federal Bank has signalled its intention to adopt a more assertive stance in green finance, emphasizing technology-driven banking. Meanwhile, the RBI has incorporated the small renewable energy sector into the priority sector lending (PSL) scheme. This inclusion renders firms eligible for loans up to Rs 30 crore and households eligible for loans up to Rs 10 lakh, specifically for investing in renewable energy.

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