RBI Report Outlines Policy Levers to Mobilise Green Investment

India's Reserve Bank of India has proposed a range of monetary policy and prudential regulatory measures to channel capital into climate-friendly assets, according to its latest report on currency and finance. The proposals come as India targets net-zero emissions by 2070, a goal the RBI estimates will require approximately US$10 trillion in total investment.

The RBI report recommends extending priority sector lending to renewable energy firms and providing low-cost funds to commercial banks as a means of reducing borrowing costs for clean energy projects. The central bank also proposes accepting Sovereign Green Bonds as eligible collateral for Statutory Liquidity Ratio requirements, a move that could unlock credit for low-carbon assets. With India's sustainable debt issuance reaching US$8.5 billion in the financial year 2022, designating high-rated sustainable bonds as SLR-eligible would significantly deepen the domestic green bond market.

Beyond monetary policy, the report recommends easing External Commercial Borrowing norms to attract foreign investment by recognising clean energy as a standalone sector and allowing borrowers to raise capital beyond the current US$750 million annual ceiling. A climate-specific countercyclical capital buffer, linked to banks' loan composition, would incentivise lending to low-carbon assets and align with Basel III risk frameworks. India holds over US$580 billion in foreign exchange reserves, and strategically deploying even a small portion toward credit guarantees or currency hedging subsidies could catalyse large-scale foreign clean energy investment.

The RBI's initiative places it among a select group of central banks globally actively embedding climate risk into regulatory frameworks, alongside the US Federal Reserve, the European Central Bank, and the Bank of England. Implementation will require coordination across ministries and financial regulators. Analysts note that voluntary frameworks must ultimately give way to binding climate risk requirements for banks to ensure the scale of investment necessary for India's energy transition and long-term net-zero commitments is mobilised on time.

Key figure — US$10 trillion — estimated total investment required for India to achieve net-zero by 2070