Source: Business Standard
Context: Public-sector banks (PSBs) have proposed carving out a 2% sub-target for climate and transition finance within the existing Priority Sector Lending (PSL) requirement of 40% of Adjusted Net Bank Credit (ANBC) for scheduled commercial banks.
What the Banks Proposed
- A 2% sub-target for climate and transition finance within PSL
- Higher lending limits for loans to the renewable energy sector under PSL
- Inclusion of electric vehicle financing within the PSL framework
- Cover for EV charging infrastructure, battery-swapping infrastructure and commercial EV fleets
The Current PSL Framework
Scheduled commercial banks must lend 40% of Adjusted Net Bank Credit to priority sectors. At present there is no separate climate or transition sub-target under PSL. Within that, there are existing sub-targets:
- Agriculture — 18% (14% non-corporate farmers, 10% small/marginal)
- Micro enterprises — 7.5%
- Weaker sections — 12%, covering Scheduled Castes, Scheduled Tribes, minority communities and self-help groups
- The remainder goes to other eligible sectors, including housing, education, renewable energy, social infrastructure and export credit
The Renewable Energy Limits Proposed
- Raising the limit to ₹75 crore for wind and small hydropower projects
- Retaining the ₹35 crore limit for solar photovoltaic projects
- Keeping the overall ceiling at ₹100 crore per borrower from the banking system
What is Transition Finance?
- Transition finance is lending to high-carbon-emitting industries to help them reduce emissions — as distinct from green finance, which funds activities that are already clean.
- The industries involved: iron and steel, chemicals and fertilisers, and construction.
Important Facts for Exams
- Priority Sector Lending requires scheduled commercial banks to lend 40% of Adjusted Net Bank Credit to specified sectors
- Green finance funds already-clean activity; transition finance funds emission reduction in high-carbon industries
- The climate finance taxonomy was announced in Budget 2024-25 and released in draft by the DEA, but is not yet finalised
- India’s target is net zero by 2070
Practice MCQs
Q1. With reference to the proposals made by public-sector banks, consider the following statements:
a. They proposed a 2% sub-target for climate and transition finance within priority sector lending.
b. They sought higher lending limits for the renewable energy sector under PSL.
c. They proposed bringing electric vehicle financing within the PSL framework.
d. A separate climate sub-target already exists under the current PSL framework.
How many of the above statements are correct? (a) Only one (b) Only two (c) Only three (d) All four (e) None
Q2. With reference to the priority sector lending framework, consider the following statements:
a. Scheduled commercial banks must lend 40% of Adjusted Net Bank Credit to priority sectors.
b. The sub-target for agriculture is 18%.
c. The sub-target for micro enterprises is 7.5% and for weaker sections 12%.
d. Renewable energy is excluded from priority sector lending.
How many of the above statements are correct? (a) Only one (b) Only two (c) Only three (d) All four (e) None
Answer Key
- (c) — a, b, c correct. Statement d is wrong: there is no separate climate or transition sub-target under the current PSL framework. Creating one is exactly what the banks have proposed.
- (c) — a, b, c correct. Statement d is wrong: renewable energy is already an eligible PSL category, falling within the residual portion alongside housing, education, social infrastructure and export credit.
