Climate concerns moving centre stage at Reserve Bank of India

The Reserve Bank of India (RBI) is set to unveil guidelines on green financing, including special deposits for green projects, recognising that the subject of climate risk and sustainable finance no longer remains an outlier but demands coordinated policy attention.

Governor Shaktikanta Das said these would be the first set of measures to address the impacts of climate change on the financial system.

"Being a full-service central bank with financial stability as part of its mandate, the Reserve Bank recognises that climate change can translate into climate-related financial risks for regulated entities (REs) which can have broader financial stability implications," Das said Wednesday.


The central bank would issue guidelines on three broad contours, to begin with - a framework for acceptance of green deposits, a disclosure framework on climate-related financial risks, and guidance on climate scenario analysis and stress testing.

"Issuance of guidelines in this regard by the RBI indicates that the subject and the business of climate risk and sustainable finance is no longer a peripheral topic but has become mainstream," said Shivaji Thapliyal, head of research at Yes Securities.

The guidelines will be issued in a phased manner. The RBI will also have a dedicated page on its website for all instructions, press releases, publications, speeches and related RBI communication on climate risk and sustainable finance.

The RBI brought out a discussion paper on climate risk and sustainable finance on July 27, 2022, for public comments and feedback. The proposed guidelines are based on an analysis of the feedback received, RBI said.

Climate change is increasingly being recognised globally as a source of financial risk for banks. The uncertainty about the timing and severity of climate-related and environmental risks certainly threatens the safety, soundness and resilience of the financial intermediaries and, in turn, the stability of the overall financial system.

"Climate and sustainable financing is still an evolving area for all the stakeholders and proposals to issue guidelines for on various aspects, especially the disclosure framework on climate-related risk, scenario analysis and stress testing may bring uniformity in disclosures by lenders," said Anil Gupta, senior vice president at ICRA. "This will hence enable relative benchmarking across various lenders," he said.