How Can a Dedicated Green Bank Propel India’s Sustainable Transformation?

According to the report by Next Move Strategy Consulting, the global Green Banking Market sector is being propelled by various factors such as worldwide commitment to net-zero carbonization, increasing Environmental, Social, and Governance (ESG) appetite globally along with demand for sustainable investment funds. The sector is restrained by high initial expense but on the contrary, the worldwide trend towards sustainability provides immense opportunities for the future.

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India’s transition to a low-carbon economy requires innovative financing solutions that can mobilize capital at scale. As the nation charts its path to achieve net-zero emissions by 2070, policymakers are exploring the creation of a dedicated national green bank. This institution is intended to aggregate green capital, lower borrowing costs, and bridge the sizable funding gap in renewable energy and other sustainability sectors.

What Is the Government’s Proposal for a Dedicated Green Bank?

The think-tank Niti Aayog has proposed the establishment of a National Green Financing Institution modelled on successful peers such as the National Bank for Financing Infrastructure and Development or NABARD. Its primary mandate would be to:

• Aggregate green capital from diverse sources.
• Lower the cost of capital for renewable energy and other clean-tech projects.
• Fast-track India’s green transition by addressing financing bottlenecks.

Key Fact: “The primary purpose of the Institution will be to aggregate green capital from different sources and lower the cost of capital.”

Conclusive Summary:
A dedicated green bank would serve as a centralized vehicle to mobilize and manage sustainable finance, reducing borrowing costs for green projects.

• It leverages proven institutional models.
• It offers a focused approach to clean-energy financing.

How Large Is India’s Green Finance Gap?

Meeting India’s commitment to net-zero by 2070 demands unprecedented investment levels:

According to the Economic Survey for 2023–24, preliminary estimates indicate that India will require a total investment of USD 1.4 trillion to achieve its net-zero emissions target by 2070, which translates to an average annual investment need of USD 28 billion per year. To bridge this substantial funding gap, the Reserve Bank of India recommends allocating 2.5 % of the country’s annual GDP to green finance. Moreover, a 2022 report by the Climate Policy Initiative found that domestic sources accounted for the majority of India’s green finance, contributing 87 % in fiscal year 2019 and 83 % in fiscal year 2020.

Conclusive Summary:
India’s green finance requirement vastly exceeds current flows.

• A funding shortfall of USD 28 billion annually must be addressed.
• Currently, domestic resources dominate (over 80 %), indicating limited international capital inflows.

How Will a Green Bank Lower Financing Costs for Clean-Tech?

A national green bank can employ multiple tools to reduce financing costs:

1. Credit enhancement by providing guarantees or first-loss capital.
2. Co-financing arrangements with international climate funds housed in GIFT City.
3. Green InvIT structures to securitize revenue streams from renewable assets.
4. Repurposing existing institutions such as IREDA to expand their mandate.

Key Fact: Niti Aayog is “examining repurposing existing institutions like IREDA; Climate Fund in GIFT city; Green InvIT, etc.”

Conclusive Summary:
By leveraging credit guarantees, blended finance, and asset securitization, a green bank can significantly lower borrowing costs for developers.

• It attracts private capital by de-risking projects.
• It creates standardized products that appeal to institutional investors.

How Is Niti Aayog Planning Sectoral Decarbonisation?

Beyond financing, Niti Aayog is crafting a comprehensive roadmap for key carbon-intensive sectors: cement, aluminium, and MSMEs. The roadmap will:

• Map emission sources along production value chains.
• Identify decarbonisation levers and readiness of supporting technologies.
• Assess global developments such as the European Union’s Carbon Border Adjustment Mechanism (CBAM).

Key Fact: “Niti Aayog is developing a comprehensive decarbonisation roadmap for the cement, aluminium, and MSME sectors to guide their transition toward sustainability.”

Conclusive Summary:
Sector-specific roadmaps will align India’s industries with global climate policies and unlock green finance by clarifying investment needs.

• They highlight where financing can achieve the greatest emissions reductions.
• They prepare industries for evolving international trade regulations.

Next Steps: Actionable Takeaways

1. Establish governance and capital structure for the proposed green bank, drawing on NABARD and NBFC frameworks.
2. Design credit enhancement mechanisms—such as guarantees and first-loss capital—to attract private co-investors.
3. Integrate sector roadmaps with financing products to ensure alignment between project pipelines and capital deployment.
4. Engage international climate funds through the GIFT City framework for blended finance solutions.
5. Monitor and report impact metrics (e.g., annual green capital mobilized, cost of capital reductions) to build credibility and transparency.

By combining institutional innovation with targeted sectoral strategies, India can bridge its green finance gap and accelerate its journey toward net-zero.