Green projects be given priority status: Bankers to RBI

Bankers have requested RBI to give priority sector status to loans for projects that are eco-friendly.

Bankers have argued that in the absence of any policy initiatives from the government and the banking regulator, this move could encourage banks to finance environmental-friendly projects. All PSU and private banks have to give 40 per cent of their loans to farmers, the weaker section of the society and as home loans and education loans.

Bankers suggested three ways to provide financial support to projects that emit lower carbon. They could provide equity support for such project akin to venture funding to make such project more viable. The second option was to charge a higher interest rate — of 25-50 basis points — for financing projects which emit higher carbon.

A fund can be created from the additional money charge and it can be used for financing projects that emit less carbon. This way, the borrowers of higher carbon emitting projects would cross-subsidise those with lower carbon emitting projects. The third option was that the government should create a fund and use that fund to guarantee environment-friendly projects which are less viable.