RBI Governor Calls for Enhanced Risk Management in Green Tech Financing

MUMBAI: In a significant move towards sustainable finance, RBI Governor Sanjay Malhotra has called upon banks to bolster their risk management frameworks. This initiative aims to address the credit risks associated with the financing of emerging green technologies, which currently have limited reliability and efficiency track records.

Malhotra emphasized the importance of financial institutions preparing for climate-related risks, which not only impact individual entities but also the broader financial system. "Climate-related changes are clear and visible. They are intensifying and threatening ecosystems, livelihoods, and economies," he stated, advocating for collective action to mitigate these risks.

RBI's Proactive Measures and Global Coordination

The RBI is taking proactive steps, such as stress testing and scenario analysis, to assess the financial impact of climate risks. Malhotra highlighted the development of the Reserve Bank — Climate Risk Information System (RB-CRIS) to bridge data gaps, providing standardized datasets on climate risks. Furthermore, to promote climate financing, RBI has included small renewable energy projects in priority sector lending, ensuring credit access for green initiatives.

Malhotra also pointed to global coordination efforts, such as the Network for Greening the Financial System (NGFS), which offers technical guidance for managing climate-related financial risks. The RBI plans to introduce further initiatives, including a dedicated cohort on climate change risks under its Regulatory Sandbox programme and a special ‘Greenathon’ focused on sustainable finance.

He urged for greater collaboration among financial institutions, regulators, and the government to ensure a harmonized regulatory approach towards building a financial system resilient to future climate shocks and contributing to India's sustainable and resilient future.