Banks significantly increased their lending to renewable energy projects in April, with credit rising 7% to ₹13,852 crore compared to March outstanding levels. According to latest regulatory data reported by The Economic Times, this surge in funding for green energy underscores the nation's commitment to energy transition amid growing global energy security concerns. The renewable energy sector demonstrated strong performance metrics, recording 15.6% year-on-year growth against the banking sector's 16% loan expansion, making the green sector the highest month-on-month bank loan growth among all priority sector verticals.
India is moving toward formalizing its climate finance taxonomy, with a formal taxonomy expected by the end of FY27. Finance Minister Nirmala Sitharaman announced in the Union Budget FY25 that the country will develop a taxonomy for climate finance to enhance capital availability for climate adaptation and mitigation. The development builds on the Reserve Bank of India's 'Survey on Climate Risk and Sustainable Finance' in July 2022, followed by SEBI's reporting architecture on sustainable finance. As per Business Standard, the buzz around an official taxonomy has been building, with banks preparing readiness in step with the framework's development.
Banking executives emphasized the strategic importance of renewable energy investments amid changing geopolitical dynamics. Indian Bank managing director Binod Kumar stated that ongoing geopolitical tensions and energy security concerns have reinforced India's commitment to renewable energy and energy transition agenda, leading to sustained credit demand growth. Indian Overseas Bank managing director Ajay Kumar Srivastava highlighted that green finance has moved from the margins to a focus area, covering renewable energy, rooftop solar, electric vehicles, green certified buildings and sustainable water projects. Canara Bank managing director Brajesh Kumar Singh agreed that credit demand from green and solar energy sectors has been rising due to changing geopolitical dynamics.
India achieved significant milestones in solar capacity expansion, adding a record 44.6 gigawatt of solar capacity in FY26, bringing cumulative installed solar capacity to approximately 150 gigawatt. According to PL Capital analysis reported by The Economic Times, this achievement positions India as the world's third-largest solar market. The growth has been broad-based, supported by the government-backed production linked incentive scheme. As per Business Standard, the government-backed institutions and others should mobilize low-cost climate capital and provide targeted interest subvention to support the sector's continued expansion.
Industry experts anticipate continued focus on renewable energy investments driven by both geopolitical and climate considerations. Vujay Mani, partner at Deloitte India, noted that the geopolitical climate could increase focus on physical climate finance, covering both mitigation and adaptation/resilience sectors. State Bank of India chairman C S Setty highlighted that sunrise sectors like green hydrogen and emerging renewable energy models are showing greater potential for investment. Indian Bank is emphasizing lending to infrastructure including solar module manufacturing, city gas distribution, and smart metering to support the sector's growth trajectory. The development of a formal taxonomy is expected to address current challenges including high borrowing costs, false claims of environmental compliance, and plurality of green loan definitions.
