Indian Government Banks Remain Reluctant Lenders to Green Power Projects

Green Loans India

India requires hundreds of billions of dollars in funding for its 500 GW of green power capacity that is supposed to come up by 2030 as part of its climate change mitigation efforts as per the Paris climate change treaty. However, India’s government-owned banks have not done much to support the government efforts in turbocharging the sector, which will not only help fight climate change but also tackle the problem of air pollution, reducing India’s imports as well as increase energy access.

As per a recent report, there are no Indian PSU banks amongst the top 10 lenders to India’s renewable energy sector in 2018. The biggest lender was L&T Finance, which is a non-banking finance institution owned by the infra conglomerate L&T, that lent more than a billion dollars accounting for almost 40% of the total lending to the green sector. There were other private banks such as Yes Bank and Indus Ind Bank besides some major multilateral institutions such as the World Bank and ADB. Other major Indian private banks such as HDFC Bank, ICICI Bank, and Axis Bank were also surprisingly missing from the list as RE projects are generally thought to be more risk-free when compared to fossil fuel power projects which are at the risk of becoming stranded due to the rapid decrease in RE power costs. Also, read about banks that provide loans for rooftop solar projects in India.

India’s RE sector will have to find new sources of lending as the demand grows with some estimating that India would need around $450 billion over the next decade to achieve its ambitious green energy capacity targets. This would mean a quantum jump in the $2.64 billion lendings to RE from last year and would require all big banks and lending institutions to get into the sector. Also, the loans which have been made need to be recycled as they cannot get stuck into the existing projects. Pension funds and other sources of long term patient capital will need to buy the loans from the banks once they start to produce cash flows for a number of years reducing their risk profile. Securitization and INVITS are other sources through which more capital can flow through the RE sector leading to increased lending for the green sector in India.

Also, read our list of top Ten Banks in India