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Time of India
29-04-2025
- Business
- Time of India
RBI: Balance green fin push & credit risks
RBI MUMBAI: Regulators and policymakers need to perform a "delicate balancing act" to successfully navigate the dual challenges of promoting green finance while managing heightened credit risks arising out of the transition to green technology that could threaten financial stability , M Rajeshwar Rao , deputy governor of RBI said, while speaking on green finance. "The fact that the net-zero technologies driving the transition to decarbonisation, are at various developmental and evolving stages, itself signifies a significant increase in credit risks. Thus, there is a dichotomy wherein on one hand there is a need for incentivising green and sustainable finance and on the other there is an increase in inherent risks from encouraging such financing," he warned during his valedictory address at the Credit Summit 2025 in New Delhi. Stay informed with the latest business news, updates on bank holidays and public holidays . Master Value & Valuation with ET! Learn to invest smartly & decode financials. Limited seats at 33% off – Enroll now!
Time of India
28-04-2025
- Business
- Time of India
Climate change may lead to increased probability of defaults: RBI DG Rao
Climate change would lead to additional operational costs for borrowers with an increased possibility of a loss of their assets, leading to an increased probability of default by borrowers, RBI deputy governor M Rajeshwar Rao has said. Speaking on the topic 'Building a robust ecosystem for Green and Sustainable Finance in India ', he said climate change risks impact the financial institutions, financial system and real economy through the traditional risk categories and one risk factor that prominently stands out is credit risk. #Pahalgam Terrorist Attack India stares at a 'water bomb' threat as it freezes Indus Treaty India readies short, mid & long-term Indus River plans Shehbaz Sharif calls India's stand "worn-out narrative" "Climate change would lead to additional operational costs for the borrowers with an increased possibility of loss of their assets, leading to increased probability of default by the borrowers," he said at Credit Summit 2025 organised by the Bharat Climate Forum here on April 17. The real economy is also impacted through various means such as direct property losses, crop losses, loss of employment and livelihood losses, according to his speech posted by the RBI on Monday. Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like [Click Here] 2025 Top Trending local enterprise accounting software Esseps Learn More Undo "Another facet of credit risk in climate change emanates from the need to promote green and sustainable financing. The fact that the net-zero technologies driving the transition to decarbonisation, are at various developmental and evolving stages, itself signifies a significant increase in credit risks," Rao said. Thus, there is a dichotomy wherein on one hand there is a need for incentivising green and sustainable finance and on the other there is an increase in inherent risks from encouraging such financing. Live Events "So, the key issue is how to manage this dichotomy. While the prudential aspect, i.e., the risk management consideration, is the prime concern for any regulator, the flow of credit is generally market determined albeit mandated at times through specific directed lending policies," he said. Therefore, a delicate balancing act needs to be performed by the regulators to avoid any imbalance from the broader financial stability perspective, the senior RBI official said. He further said challenges to green and sustainable finance are many and can be broadly categorised into two specific buckets - one is structural issues while the other relates to the quantum of financing available. "The inherent risks in the green and sustainable finance, skews the risk-reward considerations leading to increased cost of credit. This leads to demand by private sector investors/ lenders for appropriate derisking mechanisms through grants/ guarantees/ philanthropic capital/ financial incentives, etc," Rao said, and added mobilising such capital on scale, would be a challenge. The deputy governor further said that India occupies a unique position in the context of global climate. As one of the world's fastest-growing economies, it faces the dual challenge of fostering and sustaining economic development while addressing climate change. On the one hand, it is highly vulnerable to climate risks while on the other hand, it has the potential to lead the global green transition. "While we have made a fair start, there are several challenges that remain to be addressed," he said. The risk management architecture in regulated entities for climate-related financial risks is still evolving and further concerted efforts are required. In his speech, Rao also stressed that for the purpose of climate-related financial risk, assessment and related facets of green and sustainable finance, be it transition or adaptation finance, data is very crucial. One of the limitations of climate risk assessment at this juncture is the need for technical expertise coupled with unique data requirements. Climate-related data, understanding nuances of climate patterns and the impact on account of climate change, is a highly technical and skilled job. He said climate scientists across the world use supercomputers to study climate and weather patterns and its related aspects. It involves complex modelling and is resource-intensive. "If we depend on a financial sector expert, who uses financial modelling for assessing quantitative estimates and then arrive at the financial sector impact, this expertise alone may not suffice," the deputy governor said. The two skill sets needed for climate scenario analysis and climate finance risks are completely different in that as climate scientists are not experts in financial modelling and financial modellers have limited expertise in area of climate science, he said. This makes the job of assessment of impact of climate change risks on financial sector more difficult and would therefore require collaboration amongst the two, Rao said. The Reserve Bank has included sustainable finance and climate risk mitigation as a topic under the Theme Neutral "On Tap" application facility under the Regulatory Sandbox which could help develop and test innovative solutions.
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Business Standard
28-04-2025
- Business
- Business Standard
Inherent risks in sustainable finance drive up lending costs: RBI's Rao
The inherent risks associated with green and sustainable finance tend to skew risk-reward dynamics, resulting in a higher cost of credit, said M Rajeshwar Rao, deputy governor of the Reserve Bank of India, at the Credit Summit 2025 organised by the Bharat Climate Forum in New Delhi on April 17. The speech was released on the RBI website on Monday. He noted that this prompts private sector investors and lenders to seek appropriate de-risking mechanisms — such as grants, guarantees, philanthropic capital, and financial incentives. However, mobilising such capital at scale remains a significant challenge. Rao also highlighted issues around the availability of bankable projects. While fully bankable projects typically secure funding, partially bankable or non-bankable projects continue to face financing hurdles. 'The inherent risks in green and sustainable finance skew the risk-reward considerations, leading to an increased cost of credit. This leads to demand by private sector investors/lenders for appropriate de-risking mechanisms through grants/guarantees/philanthropic capital/financial incentives, etc. Mobilising such capital on scale would be a challenge,' he said. 'Also, there is a difficulty regarding the availability of bankable projects. Though bankable projects invariably find credit, there are funding challenges with partially bankable and non-bankable projects,' he added. Rao highlighted that when discussing green and sustainable finance, the first and foremost consideration is defining what qualifies as such. A national-level taxonomy is essential — it forms the foundational framework that brings alignment across the entire ecosystem, including the government, regulators, policymakers, financial institutions, and borrowers or investors. In India, this taxonomy is currently under development. 'When we talk of green and sustainable finance, the primary consideration is understanding as to what defines it. A national-level taxonomy is crucial as it serves as the first building block that aligns the entire ecosystem, be it the government, regulators, other policymakers, financial institutions, and borrowers/investors. This is under development in India,' he said.
Time of India
28-04-2025
- Business
- Time of India
RBI calls for balance between promoting green finance and managing transition risks
Mumbai: Regulators need Regulators and policymakers need to perform a "delicate balancing act" to successfully navigate the dual challenges of promoting green finance while managing heightened credit risks arising out of the transition to green technology that could threaten financial stability M. Tired of too many ads? go ad free now Rajeshwar Rao, Deputy Governor of RBI said speaking on green finance. "The fact that the net-zero technologies driving the transition to decarbonisation, are at various developmental and evolving stages, itself signifies a significant increase in credit risks. Thus, there is a dichotomy wherein on one hand there is a need for incentivising green and sustainable finance and on the other there is an increase in inherent risks from encouraging such financing.," he warned during his valedictory address at the Credit Summit 2025, organised by the Bharat Climate Forum in New Delhi. Speaking to an audience of industry stakeholders and policymakers, Rao outlined that building a national taxonomy for green finance was a necessary "first building block" to ensure alignment across the ecosystem. He said, "A national level taxonomy is crucial as it serves as the first building block that aligns the entire ecosystem, be it the government, regulators, other policy makers, financial institutions and borrowers/investors. " He stressed that this framework would bring consistency to regulatory approaches and facilitate the mobilisation of both domestic and international capital for climate initiatives. Cautioning against over-reliance on public funds, Rao called for creating a self-sustaining green finance market. He said, "Climate change risks and financing needs to be viewed also as an opportunity," encouraging financial institutions to innovate and actively participate in building a resilient financial ecosystem for India's green transition. Tired of too many ads? go ad free now Highlighting current efforts, Rao mentioned that the Reserve Bank had published a draft 'Disclosure Framework on Climate-related Financial Risks' in Feb 2024 and that it is being finalised after extensive feedback. "Transparency and related checks and balances that provide assurance on end use of the funds related to green and sustainable finance is extremely important," he said, underlining the necessity for a robust assurance and verification mechanism to counter greenwashing risks. He also addressed the gaps in technical expertise within financial institutions, noting that financial modelers and climate scientists often operate in separate spheres, complicating effective climate risk assessments. "Climate change risks impact the financial institutions, financial system and real economy through the traditional risk categories," he said, pointing particularly to rising credit risks from emerging green technologies. Rao stressed the importance of blended finance models, collaboration between DFIs, MDBs, and innovation in financial instruments to scale up sustainable finance. "Tools like guarantees, sustainability-linked loans, and climate-resilient bonds could be explored to further enhance private sector involvement," he suggested.
