RBI Urges Banks to Tackle Climate Risks
MUMBAI: In a significant address on Thursday, Reserve Bank of India (RBI) Governor Sanjay Malhotra called on banks to enhance their risk management frameworks to effectively address the credit risks associated with emerging green technologies. Speaking at the Policy Seminar on Climate Change Risks and Finance in New Delhi, Malhotra emphasized the importance of developing the necessary capacity and technical expertise to evaluate risks in financing projects that utilize these technologies.
Addressing Climate-Related Financial Risks
Malhotra highlighted the urgent need for financial institutions to prepare for climate-related risks, which pose threats not only to individual entities but also to the broader financial system. He stated, “Climate-related changes are clear and visible. They are intensifying and threatening ecosystems, livelihoods, and economies.” The governor stressed that collective action is essential to mitigate these risks effectively. To assess the financial impact of climate risks, the RBI is implementing measures such as stress testing and scenario analysis. “Our goal is to make a realistic estimation of climate risks on the financial system. This requires comprehensive assessment, which is no easy task,” he explained. To bridge existing data gaps, the RBI is developing the Reserve Bank — Climate Risk Information System (RB-CRIS), which aims to provide standardized datasets on climate risks, including hazard data and sectoral transition pathways.
Promoting Climate Financing Initiatives
In a bid to promote climate financing, the RBI has included small renewable energy projects in its priority sector lending framework. This initiative aims to ensure that green projects have access to necessary credit. However, Malhotra pointed out that the lack of bankable projects remains a significant challenge. He urged financial institutions to collaborate in creating a common pool of such projects, stating that this would yield multiple benefits for the ecosystem. Additionally, Malhotra referenced global coordination efforts, particularly the Network for Greening the Financial System (NGFS), which offers technical guidance for managing climate-related financial risks. He affirmed the RBI’s commitment to building a resilient financial system capable of withstanding future climate shocks while contributing to India’s sustainable future.
Future Initiatives and Collaborative Efforts
Looking ahead, the RBI plans to introduce further initiatives, including a dedicated cohort on climate change risks as part of its Regulatory Sandbox program. A special event, termed ‘Greenathon,’ will focus on sustainable finance. Malhotra called for enhanced collaboration among financial institutions and regulators, urging the government to ensure a harmonized regulatory approach to effectively address climate challenges.
Observer Voice is the one stop site for National, International news, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
Follow Us on Twitter, Instagram, Facebook, & LinkedIn