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Loans for electric vehicles and green hydrogen may soon be categorised under priority sector lending (PSL) by banks. Several banks have suggested the move to the Reserve Bank of India (RBI), a report in Economic Times (ET) said.
Banks reportedly told the RBI that categorising such loans as a priority will help fill the “financing gaps” in these sectors, the report added.
Also, it will help banks to meet their PSL targets. Currently, banks are required to make 40 per cent of their total lending towards priority sectors.
“Expanding the PSL category will also help lenders meet their requirements, which they are unable to do presently and are required to buy priority sector lending certificates,” an official aware of the matter told ET.
Currently, 8 sectors are eligible for lending under the PSL mechanism. These include agriculture, MSMEs, export credit, housing, education, renewables, and social infrastructure sectors.
The Indian Banks’ Association (IBA) in September, set up a committee to look into “sustainable financing” with Environmental, Societal and Governance (ESG) issues in focus.
“There are various suggestions on green financing and ESG-related issues. A committee comprising of both Indian and foreign lenders has been set up to evaluate all the issues and best practices,” IBA Chief Eexecutive Sunil Mehta told ET.
However, experts have cautioned that “greenwashing” the loans must be done correctly, and with inspections.
An expert quoted by ET said that investing in a business that claims to use recycled materials when it actually does not could result in funds under sustainable finance getting channelised incorrectly.
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