Viksit Bharat @ 2047: Transformative Role of Commerce, Management and Technology (Edition-III) (ISBN : 978-93-49468-06-1)

Signaling Green: An Empirical Study of Green Loans Visibility in Private Sector Banks

Author: Ayush Pandey & Dr. Anuradha Sarin

The vision of Visit Bharat requires a strong institutional framework to achieve sustainable development outcomes. Environmental sustainability is one of the three core pillars, as given by the Brundtland Report in 1987, to ensure a balanced relationship between nature and human activities. In contemporary times, visualising the rise in environmental sustainability concerns, the banking sector has assumed responsibility by ensuring mobilisation of requisite capital to finance sustainable projects. Despite this, the accessibility of green loans in Private Scheduled Commercial Banks (SCBs) remains largely overlooked. Based on signalling theory, the present study insists that banks should provide differentiated, solely branded green loans rather than associating them with conventional loans, which will send robust, reliable signals to borrowers, eventually increasing transparency and accessibility of green loans. The present study uses secondary data collected by the official website of RBI and all 21 private SCBs. The findings reveal that 14 banks out of 21 private SCBs (67%) provide green loans. While 7 banks (33%) do not provide recognisable green loans. Among these 14 banks (67%) that are providers, 7 banks (33%) offer green loans by relying on both government schemes and individual branding, 5 banks (24%) depend only on individual banners and 2 banks (10%) on government schemes only. This study shows that a large number of Indian private Banks have introduced green loan products under different banners. This increases their availability, transparency and accessibility by clearly indicating the effectiveness of green financing in India. However, an adroit analysis reveals certain shortcomings that need to be addressed to encourage green financing all across. Findings such as these assist in formulating effective regulations, enhancing banks’ transparency in lending green loans and bringing to fore the contribution of the financial sector to green financing.

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