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RBI’s ESG push catches Indian banks off-guard

March 03, 2023

RBI’s ESG push catches Indian banks off-guard
Indian banks are yet to wake up to the needs of environmental, social, and governance (ESG) norms due to their lack of vision and clarity on how they apply to lenders, reveals a survey conducted by an industry body on behalf of the central bank. 

A Reuters report said the Reserve Bank of India (RBI), after realising the need is likely to use the findings to adopt the first set of guidelines to propel green finance. 

The central bank has earlier acknowledged climate change as a source of financial risk. The RBI is likely to issue guidelines regarding the matter later this year. 

According to the survey, a majority of domestic banks, particularly mid-sized and small ones, are unable to understand the ESG functionalities. 

 Their lack of clarity stems from a lack of understanding over matters involving lenders. \”There is also a low incentive to switch to these norms,\” a source was quoted as saying by the wire agency. 

Worldwide, banks are restructuring a growing number of loans to link them to a borrower\’s ESG performance. 

Research by London-based Acuity Knowledge Partners suggests ESG-based lending rose to $322 billion globally in 2021, from $6 billion in 2016, accounting for over 12 per cent of total lending. 

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