Public sector banks seek dedicated climate finance target under PSL norms

Public sector banks have formally requested that financial regulators establish a dedicated climate-transition finance sub-target of 2% under the priority sector lending (PSL) framework, according to industry sources. The proposal aims to create a distinct category for lending that supports India's transition to cleaner energy sources and sustainable economic activities.

The banking sector's pitch also includes calls for substantially higher lending limits for renewable energy projects, which currently operate under PSL constraints. Banks argue that existing caps have become inadequate given the scale of India's renewable energy expansion targets and the increasing demand for green financing from both large and small enterprises.

A third element of the banks' request involves bringing electric vehicle financing formally within the PSL framework. Currently, EV financing operates outside priority sector lending norms, limiting banks' ability to incentivize adoption of electric mobility through preferential lending rates and terms.

These proposals reflect broader efforts by India's banking sector to align lending practices with the country's climate commitments while maintaining profitability. Regulators have not yet responded to the formal requests, but the banking sector sees dedicated climate finance targets as essential to mobilizing the substantial capital required for India's green transition.