Public sector banks have submitted comprehensive proposals to Finance Minister Nirmala Sitharaman at the PSB Confluence session organized by the Department of Financial Services. According to reports from Business Standard, the banks have proposed carving out a 2% sub-target for climate and transition finance within the existing priority sector lending requirement of 40% of adjusted net bank credit (ANBC) for scheduled commercial banks. Currently, there is no separate climate or transition sub-target under PSL, with the framework covering agriculture loans (18%), micro enterprises (7.5%), weaker sections (12%), and residual for other eligible sectors including housing, education, renewable energy, and social infrastructure.
The banks have also sought higher lending limits for renewable energy projects under PSL and inclusion of electric vehicle financing within this framework. As reported by Business Standard, the proposed changes include raising the limit to ₹75 crore for wind and small hydropower projects, while retaining the existing ₹35 crore limit for solar photovoltaic projects, with the overall ceiling remaining at ₹100 crore per borrower from the banking system. The current loan exposure limit for renewable energy financing stands at ₹35 crore to a single borrower.
Under the proposed framework, banks have suggested PSL treatment for loans up to ₹2 lakh for electric two-wheelers and ₹20 lakh for electric four-wheelers for personal use. According to Business Standard, they have also proposed PSL treatment of loans up to ₹25 lakh limit for battery-swapping and charging infrastructure, and up to ₹50 crore limit for commercial fleet operators. These proposals aim to expand electric mobility financing under the priority sector lending framework.
Industry experts have highlighted the need for a comprehensive climate finance taxonomy as a prerequisite for implementing the proposed sub-target. As reported by Business Standard, Ajay Sirikonda from EY India emphasized that while having a climate and transition finance sub-target under PSL would catalyze the market and support India's net-zero carbon emission goals, the definition of transition finance remains a draft guideline that needs finalization. The finance ministry's Department of Economic Affairs released a draft framework on climate finance taxonomy last year, with public comments invited until June 2025, but the framework has not yet been finalized. An email sent to the finance ministry seeking an update on the final framework for climate finance taxonomy did not elicit an immediate response.
According to PwC India's Kuntal Sur, transition finance represents a specialized area requiring banks to build expertise in assessing loans for high-carbon industries including iron and steel, chemicals, fertilizers, and construction. As reported by Business Standard, many banks would need to undergo training before implementing such a sub-target, as transition finance involves financing for industries undergoing emissions reduction while maintaining operational continuity. The proposals were presented during the two-day PSB Confluence session that concluded on Tuesday.
