PROJECT REPORT ON

“GREEN BANKING STRATEGIES ADOPTED BY VARIOUS

BANKS”

SEMESTER VI
(2019-2020)

SUBMITTED BY:
BHARAT VANJARI

ROLL NO: 140

PROJECT GUIDE:
DR MEERA RAJAWAT

S.K.SOMIAYA DEGREE COLLEGE OF ARTS SCIENCE AND

COMMERCE

VIDHYAVHAR (E), MUMBAI: 400077

MARCH - 2020

1
 CERTIFICATE

This is to certify that Mr./Ms. BHARAT VANJARI has worked and duly

completed his/her Project Work for the degree of BACHELOR OF

ACCOUNTING AND FINANCE under the faculty of commerce in the subject of
BLACK BOOK and her project is titled as “GREEN BANKINNG

STRATEGIES ADOPTED BY VARIOUS BANKS ” under my

supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any degree or diploma of any
university.

It is his/her own work and facts reported by his/her personal findings and
investigations.

Internal Guide External Examiner

Mrs POOJA DOSHI (Signature with date)

College Seal

Principal Course Coordinator

DR MANALI LONDHE Mr. DEEPAK CHAVAN

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 DECLARATION

I the undersigned Mr./Ms. BHARAT VANJARI hereby declare that the

work embodied in this project work titled as “GREEN BANKING

STRATEGIES ADOPTED BY VARIOUS BANKS, forms my own

contribution to the research work carried out under the guidance of “DR

MEERA RAJAWAT” is a result of my own research work and has not

been submitted previously for any degree or diploma of any university.

Wherever references have been made to previous work of others, it has been clearly

indicated as such and included in the bibliography.

I, hereby further declare that all information of this document has been obtained and

presented in accordance with academic rules and ethical conduct.

Certified by

DR MEERA RAJAWAT

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 ACKNOWLEDGEMENT

To list all who have helped me is difficult because they are so numerous and the depth
is so enormous

I would like to acknowledge the following as being the idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me this
chance to do this project.

I would like to thank my Principal, Dr MANALI LONDHE for providing the

necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator Mr. DEEPAK CHAVAN, for her
moral support and guidance.

I would also like to express my sincere gratitude towards my project GuidE DR

MEERA RAJAWAT whose guidance and care made the project successful.

I would like to thank my college library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and everyone who have directly or indirectly helped
me in the completion of the project especially My Parents And Peers who
supported me throughout my project.

INDEX

Sr.no Title Pg
no

1 Executive summary 1

2 Chapter: introduction

1.1 meaning
1.2 history
1.3essential element
4
 1.4 market element
1.5 green banking product
1.6 green process
1.7 green banking financial product &
service
1.8 development in subject of green banking
1.9 organization structure and placement
1.10 opportunities of green banking in
india
1.11 various strategies for green banking
1.12 the demand for green banking
1.13 green lender
1.14 green banking for
sustainable development
1.15 green banking scenario in india
3 Chapter:2 research methodology
2.1objective
2.2 scope of green banking
2.3 significance of study
2.4 need of study
2.5 methodology
2.6 limitation

4 Chapter:3 review of literature

5 Chapter:4 analysis, interpretation &
data representation

(A) Primary data

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 4.1 questionnaires for commercial banks
(B)secondary data
4.2green banking financial product &
services
4.3various strategies for green banking
approach
4.4 strategies plan of bank to protect the
environment
4.5practic of green banking
4.6 green banking practice of top leading
Indian public and private sector banks
4.7green banking strategies adopted by
various banks
4.8RBI guideline regarding green banking
4.9green bond demand in India
4.10 graphical representation on green
bond issue in India
6 Chapter 5: Conclusion & suggestion
7 Bibliography
8 Annexure

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 Executive summary

In these project, we study about the green banking various strategies

undertaking by the various commercial banks. Green banking financing
system is so much require in current situation for economic
development of nation with proper maintaining the balance between
the development and environmental balance. This project focus on
commercial banking activity for green banking activity, in these
projects provides knowledge about important of green banking in
India.

Green banking is a step to change client habit in the banking sector for
the sustainable development in future. Online banking is the easiest
way to green banking means to promote environment friendly practices
and to reduce the carbon footprint from banking operation.

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Introduction

Green Banking is a new phenomenon in the financial world. Banks as

the financing agent of the economic and developmental activities have
an important role in promoting overall sustainable development. Green
banking is the term used by banks to make them much more
responsible to the environment. The term green banking means
developing inclusive banking strategies which will ensure sustainable
economic development. Green Banking entails banks to encourage
environment friendly investments and give lending priority to those
industries which have already turned green or are trying to go green
and, thereby, help to restore the natural environment. Green banking
means combining operational improvements, technology and changing
client habits in banking business. It means promoting environmental
friendly practices. This comes in many forms such as – using online
banking instead of branch banking; paying bills online instead of
mailing them; opening up CDs and money market accounts at online
banks, instead of large multi-branch banks; or finding the local bank in
the area that is taking the biggest steps to support local green
initiatives. Foreign banks are practicing green banking on a much
serious note. The Indian banks are still taking baby steps into this form
of banking. Still, many of them are keen to actively pursue this
strategy. For example, an investment in a factory that pollutes heavily
(and passes on the costs to the society at large) will generally have a
higher financial rate of return than a factory that invests in expensive
pollution control technology, as a result showing a lower rate of return.
How will banks assess the two and which one of the two will be
considered first for lending, although everyone knows that the second
case will clearly be a better investment option in the long run? Indian
banks have the potential to become fifth largest in the world by 2020
and third largest by 2025. Banks The banking sector in India is the
lifeline of the nation. It is the largest financial sector in India. Have
helped in country’s economic development and have transferred the
hopes of people into the reality. In recent years Indian banks have

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witnessed the growing trend and have transformed its operational
strategies to a large extent. The banking sector in India has gone
through many challenges which include a shift in consumer behaviors,
technological changes, regulatory changes, etc. It has faced various ups
and downs and has become adaptive to the changing environment.

The Traditional Banking sector in India can be defined as the banks

whose primary activity is to receive, keep and lend money. It has acted
as the payment agent for its customers. It has provided many facilities
to the customers like the opening of an account, transfer of the funds,
providing of loans, clearing of cheques, clearing of demand drafts, etc.
They are the financial intermediaries who act as the depository
institutions of the economy having control on the economy’s money
supply. Traditional banks are the major players in the financial market
of the economy. They perform the activity of transferring the
household saving into the loans for fostering business organizations.
The main objective of traditional banking is to increase their financial
leverage by making more and more profits without considering the
negative impact of its activities on the economy and the environment.
The major issue of traditional banking is that the customers have to
visit banks to carry out their banking activities within the specified
working hours only. This involves a lot of time of the customers as it
not only includes travelling but also requires them to stand in long
queues to perform their transactions. Traditional 2 banking also
involves a lot of paperwork to be done in order to perform its banking
functions properly which involves deforestation and has an adverse
effect on the environment. In order to expand its business and to
increase its operations traditional bank requires a lot of human capital
and involves a heavy cost in setting new infrastructure. Nowadays, as
people of the country are precipitously using the earth’s natural
resources, it has given rise to the concept of Green Banking. Green
Banking is different from traditional banking as it is the concept of
promoting sustainable development in the country. Green Banking is
the new phenomenon in the financial world which concentrates on

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environmental and socially responsible investing. In the era of
Globalization, global warming is becoming one of the major issues
across the world. The effects of Global warming have found to be
responsible for the destruction of the climate changes which have
impacted the land, water and human resources of the world. As people
of the society are becoming more comconcerned about the depletion of
natural resources, organizations have started performing their corporate
social responsibilities. They have started modifying their working
techniques to maximize the greenery and to reduce the impact of their
activities on the environment. Green Banking is also called as the
ethical banking which aims to protect the environment and reduce the
carbon footprint from banking activities. It encourages banks to carry
out environment-friendly investments by combining its operational
improvements and technology know-how in banking business
activities. Green Banking has started priority lending to those
industries which are already green or putting its efforts to go green.
The aim of going green is to increase the energy efficiency and to use
the biodegradable products. The performance of banks largely depends
upon the performance of its clients. The banks have to diligently check
that the customer’s projects are meeting all the legal and environmental
compliances as any failure can result in nonperforming assets for the
banks. The concept of going green is new in India and has been
adopted by the Indian banks in many forms. Banks have started
providing services of online banking, 3 mobile banking, green loans, E-
statements, etc. They have been promoting their services 24*7 to the
consumers. Banks have started providing various services like online
opening of bank accounts, online payment of bills, online investment,
use of ATMs, etc. As the concept of Green Banking is at growing pace
in India, it has also entered in the State of Rajasthan. Many Banks both
Private and Public Sector Banks in Rajasthan have started providing
Green Banking products and services to its customers and have started
contributing to the concept of ethical banking. This study provides
information about the Green Banking activities carried out by various
banks in Rajasthan. This study also includes awareness and perception
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about Green Banking activities among customers and bank employees
of the state.

MEANING

Green bank A green bank (sometimes referred to as green investment

bank, clean energy finance authority, or clean energy finance
corporation[1]) is a financial institution, typically public or quasi-
public, that uses innovative financing techniques and market
development tools in partnership with the private sector to accelerate
deployment of clean energy technologies.[2] Green banks use public
funds to leverage private investment in clean energy technologies that,
despite being commercially viable, have struggled to establish a
widespread presence in consumer markets.[3] Green banks seek to
reduce energy costs for ratepayers, stimulate private sector investment
and economic activity, and expedite the transition to a low-carbon
economy. In the United States, green banks have been created at the
state and local levels. The United Kingdom, Australia, Japan, and
Malaysia have all created national banks dedicated to leveraging
private investment in clean energy technologies.[4] Together, green
banks around the world have driven approximately $30 billion of clean
energy investment.[5]

History

In the US, the green bank concept was originally developed by Reed
Hundt and Ken Berlin, as a part of the 2008 Obama Biden Transition
Team’s efforts to facilitate clean energy development.[6] A similar
concept was adopted as an amendment to the federal cap and trade bill,
called the American Clean Energy and Security Act, introduced in May
2009.[7] A companion piece of federal green financing legislation was
simultaneously introduced in the Senate, where it received broad
bipartisan support.[8] When the 2009 cap and trade legislation
ultimately failed to pass the Senate, green bank advocates in the US

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focused on the state level.[6] Connecticut established the first state
green bank in 2011, followed by New York in 2013. By the end of
fiscal year 2015, the Connecticut Green Bank had supported $663
million in project investments. In the UK in 2009, two reports were
published advocating the creation of a state-backed infrastructure bank
to provide financing to green projects. The first, entitled "Accelerating
Green Infrastructure Financing: Outline proposals for UK green bonds
and infrastructure bank" was published in March 2009 by Climate
Change Capital and E3G.[9] The second, entitled "Delivering a 21st
Century Infrastructure for Britain" was published by Policy
Exchange in September 2009 and was written by Dieter Helm, James
Wardlaw and Ben Caldecott.

Essential elements

There are many types and styles of institutions that finance clean
energy and green infrastructure projects. There are several key
elements that distinguish green banks from other financing institutions:
a focus on commercially viable technologies, a dedicated source of
capital, a focus on leveraging private investment, and a relationship
with government.[2] Green banks focus on commercially viable
technologies, as opposed to early-stage innovative technologies,
because they have been tested, have less associated “technology risk”
and can reliably produce revenue for project owners.[11] Green banks
are public-purpose entities with some manner of a relationship with
government, and are usually capitalized by public dollars.[2] Just like a
commercial bank, green banks lend capital and own debt, so it is
important they have their own balance sheet. Green banks also focus
on using their capital to facilitate private entry into the clean energy
market—specifically by using limited public dollars to leverage private
investment in clean energy.

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MARKRKET BARREIERS

For consumers, high upfront costs often make clean energy technology
unattractive to adopt despite declines in clean energy technology costs.
[12] Historically, the clean energy sector has depended on taxpayer
funded grants, rebates, tax credits, and other subsidies to drive market
development.[13] Market barriers Ideally, private lenders would
provide financing to building-owners to cover upfront cost of clean
energy adoption (beyond what is covered by rebates). However, there
are capital market inefficiencies and inherent challenges to financing
clean energy that have resulted in inadequate investment by private
lenders. Some private lenders do offer for clean energy projects, but
typically charge interest rates that are relatively high and loan tenors
that are short.[14] Such terms make financing a clean energy project
unattractive from the end-user's perspective. To be attractive from the
enduser's perspective, financing terms would be such that the monthly
cash flow from clean energy projects would be greater than the
monthly payments for the cost of financing. This kind of cash flow
structure is only possible with loan terms that match the expected
lifetime of the projects savings, and with rates that are commensurate
with the risk. Therefore, private capital offered at unfavorable terms (if
it is available at all) undercuts the economic attractiveness of the
project potential customers or project developers. A shortfall of private
financing exists for several reasons. One reason is that there is a
relatively short track record for clean energy financing, and therefore
there is little data for lenders to rely on.[15] Without data, and
observable pipeline of similar projects, banks are left with high levels
of uncertainty over how well different types of projects perform and
how often borrowers repay their loans. This uncertainty leads to either
hesitation to enter the market, high due diligence costs and/or
unfavorable lending terms. Another reason for the financing gap is that
many clean energy projects are small and distributed. Building
efficiency upgrades and rooftop solar projects are inherently small
investments that are geographically dispersed, with varying credit

13
among counter parties. Heterogeneity in clean energy projects is more
expensive for a private lender to underwrite at scale, making loans for
clean energy projects potentially uneconomical from the perspective of
the lender. [16] A third reason for the financing gap is the lack of
capital market liquidity and maturity. If a commercial bank provides an
energy efficiency loan, it is unknown to the bank if it will be able to
sell that loan to another lender or if it will have to hold that loan on its
balance sheet.[17] Mortgage and auto lenders don't have this difficulty,
because there are highly liquid secondary markets for home and car
loans, which helps keeps rates low. These kinds of secondary markets
are just now forming for clean energy technologies. The final cause of
private underinvestment relates to human and organizational behavior.
To begin lending into a new market, a bank must hire new staff, learn
about the risks and processes of a new market, and determine precise
criteria for what kind of projects and credit ratings they are willing to
lend to. This process may be time

FINANCING ACTIVITIES

To combat these barriers to clean energy market development, green

banks help consumers’ secure long-term, low-interest loans. Green
banks harness a diverse set of financing techniques, including credit
enhancements, co-investment, and securitization

Credit enhancement Green banks frequently utilize credit

enhancements to leverage private investment. Loan loss reserves,
overcollateralization and subordinated debt can help assuage concern
among private lenders who are interested in entering the market, but
concerned about the risks associated with developers, counter parties or
technologies with less established history in their given jurisdiction.
Credit enhancements also … help lower the cost of capital for
borrowers and improve debt ratings from credit agencies.[2]

Co-investment Sometimes green banks invest directly in clean energy

projects to facilitate additional private investment or improve the
financial terms set by private lenders.[2]

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Securitization … … Securitizing clean energy loans makes lending far
more attractive for private investors. Individual clean energy projects,
which vary in credit, location, and technology, can be expensive for a
bank to underwrite, and may not achieve the desired scale of
investment. Bundling these loans into portfolios and selling them (or
shares of them) diffuses risk and creates scale, attracting a broader
group of private investors.[2]

FINANCIAL STRUCTURE

A green bank can create and securitize portfolios of loans, allowing

investors to purchase some portion of the green bank's debt on the
secondary market. Green banks can also add credit enhancements, such
as overcollateralization or loan loss reserves, to lower the creditors
exposure to default risk and secure better ratings from credit rating
agencies. Securitization provides greater liquidity in the market for
clean energy project financing, which helps lower the cost of capital
for borrowers.[2] The Connecticut Green Bank executed one of the
first such securitization deals, selling 75% of its $40 million PACE
portfolio to Clean Fund, a specialty finance company. [18] Green
banks’ innovative financing techniques are more effective if they can
operate through robust delivery mechanisms. Green banks can use
these structures to increase the security of debt service payments and
allow lenders to financing structures offer lower interest rates for clean
energy financing

. Property assessed clean energy

Property assessed clean energy (PACE) financing allows consumers to

pay energy upgrade loans through property taxes. The process places a
lien on the property, and the property owner then repays the financing
through PACE assessments on the property tax bill.[2] This reduces the
default risk associated with a loan and … incentivizes private
investment. Because the PACE structure reduces risk, it allows
consumers to obtain lower interest rates on their loans.[19] Because the

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 loans are attached to the property, when property is sold, the new
owners take over loan repayment.[2]

. MARKET DEVELOPMENT

ACTIVITIES Sometimes the availability of clean energy financing

products is not enough to stimulate the desired level of clean energy
finance activity, and various non-finance market development activities
are necessary as well. A green bank may design and execute various
market Market development activities development activities to build
the market for clean energy. Market development activities may not
directly involve lending, and a green bank may hire an outside
organization to design and perform these activities

GREEN BANKING PRODUCTS

 Green Loans: means giving loans to a project or business that is

considered environmentally sustainable.
 Green Mortgages: refers to type of mortgage that provides you a
money-saving discount or a bigger loan than normally permitted as a
reward for making energy-efficient improvements or for buying a
home that meets particular energy-efficiency standards.
 Green Credit Cards: Be it in form of environmentally friendly rewards
or using biodegradable credit card materials or promoting paperless
banking, credit cards are going green.
 Green Saving Accounts: In case of Green Saving Accounts, banks
make donations on the basis of savings done by customer’s .The more
they save, the more the environment benefits in form of contributions
or donations done by banks.
 Mobile banking and online banking: These new age banking forms
include less paperwork, less mail, and less travel to branch offices by
bank customers, all of which has a positive impact on the environment.

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THE EMERGING TREND OF GREEN BANKING The term
"Green Banking" is being heard more often today. According to Indian
Banks Association (IBA, 2014) “Green Bank is like a normal bank,
which considers all the social and environmental / ecological factors
with an aim to protect the environment and conserve natural
resources”. It is also known as ethical bank or sustainable bank. Green
banking can benefit the environment either by reducing the carbon
footprint of consumers or banks. On-line banking is an example of an
initiative of Green Banking. Benefits of online banking include less
paperwork, less mail and less driving to branch offices by bank
customers, which all have a positive impact on the environment.
Interestingly, online banking can also increase the efficiency and
profitability of a bank. A bank can lower their own costs that result
from paper overload and bulk mailing fees if more of their customers
use online banking. Green banking also can reduce the need for
expensive branch banks. Green banking is also gaining importance in
recent times. Most of the banks are undergoing computerization,
networking, and offering of online banking to customers reduces the
use of paper directly and indirectly resulting in pollution control. Banks
can also support eco-friendly groups, offer green lending and raise
money for local environment initiatives. Banks that go to these
significant lengths to be Ecofriendly are a little more difficult to find
than the banks that claim to be green by merely offering online
services. Banks that offer rate incentives on Certificates of Deposits,
money market accounts, online savings accounts and checking
accounts for online banking also help the green banking cause by
rewarding online banking customers. There has been a remarkable
improvement in the working of banks in terms of cutting costs,
increasing productivity, improving the profitability, controlling and
management of the Non-Performing Assets (NPAs), face the risks,
carry out the Asset Liability Management, manage the changes in
interest rates, handle the foreign exchange rate fluctuations, comply
with the regulator’s requirements and finally improve the customer
service to their best satisfaction. Hart & Ahuja (1996 studied a positive
17
correlation between environmental performance and financial
performance. Initially, banks were doing analysis of their financial
performance only, but now it is a time to do analysis of social and
environmental performance as well. Green Banking is not only a CSR
activity of an organization, but also it is about making the society
habitable without any considerable damage. Internationally and
domestically, several voluntary guidelines have been set up for the
categorization, assessment and management of environmental and
social risk in project financing like Equators Principles, National
Environment Policy Act, World Bank E&S Norms, Carbon Disclosure
Project, CERCLA, ISO 14000, BSE Greenex, etc. The Financial Times
and International Finance Corporation (IFC), a member of the World
Bank Group had launched the Sustainable Finance Awards for the
institutions that are integrating social, environmental and corporate
governance considerations into their business operations. The awards
highlight the partnership between financial and non financial
companies that are finding commercially viable and innovative
solutions to sustainability challenges. The five categories of
Sustainable Finance awards as per Financial Times (www.ft.com) are:-
 Sustainable Bank of the Year  Technology in Sustainable Finance 
Sustainable Investment of the Year  Sustainable Investor of the Year 
Achievement in Inclusive Business Despite many initiatives taken in
the field of Green Banking, it has been found to be at the nascent stage
in India. There is only one Indian organization Infrastructure
Development Finance Company (IDFC) Ltd, which has signed.

Green Process A Green Bank requires each of its functional units and
activities to be green i.e. environmentally friendly and help to improve
environmental sustainability (Al- Tekreeti, and Beheiry, 2016). Several
opportunities are available for banks to green their functional units and
activities. Key among them is:

 Supply Chain Management

 Adopt techniques and plans to minimize inventory

18
 Adopt networked design using a carbon footprint

 Enterprise Resource Management

 Facilitate paperless transactions

 Adopt techniques for workforce and parts optimization as well as

intelligent device management.

Customer Relationship Management

 Use electronic means, wherever possible, to maintain contact with

and correspond with customers and potential customers and minimizes
paper- based correspondences.

 Sourcing and Procurement

 Select vendors by the sustainability rating of their products, services

and operations.

 Product Life Cycle Management

 Design and offer banking products and services in such a way that
consume fewer resources and energy and thereby reduce carbon
footprint.

 Implement effective systems for product end-of-life management

that have minimal impact on the environment.

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Green Banking Products and Services

There is a greater scope of Green Banking in India as constant planning

and efforts have been laid in the field. As per the Happy Planet Index,
India is making steady progress towards reducing the carbon
emissions. The index shows that while in 2006 India stood at the 90th
position in the race of reducing carbon 13 emissions. The same index
in 2009 showed an improvement in the position of India, and it moved
from the 90th to the 35th place. Continuing the progress India is aiming
at reducing the carbon emission by 20-25% till 2020. Thus, it shows
that the economy of the country especially the banking sector has been
working in order to prevent further environmental loss by reducing
carbon emissions. The banking sector has thoroughly built its strategy
keeping in mind the six major factors i.e. the 3Cs and the 3Ps. On one
hand where the 3Cs stands for Cost, Control and Customer Service,
3Ps stand for Profit, Planet, and People. The 3Cs are the important part
of banking operations, and with the help of Green Banking, it all can be
achieved by the companies. Green Banking promotes online
transactions, and it is the best way to enhance better customer services.
The customers can avail all the facilities just by sitting at their place

20
 They can access important information through laptops or even through
smart phones. It is also a part of better customer services, and cost can
also minimise. Thus, Green Banking has huge advantages for the banks
as well as for the society. Green Banking is having two folds; one is
promoting environmental practices through the introduction of Green
Banking Financial Products and Services and second is reducing
carbon footprints from banking activities on the environment

Development in the Subject of Green Banking: International Status The idea

of environmental sustainability came in 1969 with the formation of the National
Environmental Policy Act (NEPA, 2014) in the United States whose purpose is
to maintain productive harmony between man and nature. After that an
independent agency was established in 1970 “Environmental Protection
Agency” (EPA) with the aim to protect the natural resources, human health and
to preserve the quality of the environment. Since then, several other
organizations are formed which are working towards environmental
management like US Green Building Council (USGBC), IFC (International
Finance Corporation) etc. to fosters the sustainable growth. In the early 1992,
United Nations Framework Convention on Climate Change (UNFCC) is an
international treaty which was joined by countries to limit the average increase
in global temperature. Then United Nations Environment Program (UNEP)
launched what is known as the UNEP finance initiative (UNEPFI) and 200
financial institutions around the globe are signatories of this initiative statement
to promote sustainable development. It will be noteworthy to mention that
Netherland based ABN- AMRO bank has developed certain Reputational Risk
Management (RRM) policies to identify, access and manage non-financial
present within it business engagements. In 2002, a global coalition of NGOs
formed a network named “Bank Tract” to promote sustainable finance in the
commercial sector. Across the world various voluntary rules have been set up
for the classification, assessment and management of ecological risk in project
financing like Equators Principles(EPs)which are adopted by financial
institutions (currently 79 institutions in 35 countries) for assessing, determining
and managing social and environmental risk in projects(Equator Principles
21
Association, 2014). In India, Centre for Environmental Research and Education
(CERE), Centre for Environmental Education (CEE) and Indian Green Banking
Council are principal organizations to promote environment sustainability.
Other initiatives like S&P 20 BSE-GREENEX and “Green Coin Rating system”
introduced by RBI are playing an important role in promotion of sustainable
development in India. Similarly, World Bank E&S Norms, Carbon Disclosure
Project, Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA), ISO 14000 etc. are other guidelines for Green
Banking. The Financial Times and International Finance Corporation (IFC), a
member of the World Bank Group had launched the Sustainable Finance
Awards for the institutions that are integrating social, environmental and
corporate governance considerations into their business operations.

 National Status As far as Green Banking in India is concerned, the

banks are way behind the schedule compared to the global trends.
None of the Public Sector Banks or the Private Sector Banks has
adopted “EQUATOR PRINCIPLES” of risk management framework
for determining, assessing and managing environmentally and socially
risk projects. Only few of the Indian Banks are signatories to UNEP-FI
(United Nations Environment Programme - Finance Initiative). This
declaration is endorsed by over 200 civil society organizations
including banks which give a clarion call to all the financial institutions
and banks to embrace six commitments and take immediate steps to
implement the same in fostering the sustainability. Further, very few
banks are also signatories to Carbon Disclosure Project (CDP)-India,
an initiative to prevent dangerous climate change and protect our
natural resources. Six Indian Banks have willingly agreed to include
“Principles of Collevecchio Declaration”. It seems there is no
systematic attempt to integrate the environmental concerns into the
business operations by Indian Banks. Further, there are no particular
RBI guidelines for banks on Green Banking. However, RBI has issued
circular advising banks to integrate social and environmental concerns
in their business operations. The RBI has also advised the banks to put
in place an appropriate plan of action for sustainable development,

22
 albeit all this is voluntary on the part of the banks. Green banking has
potential to transform the Indian economy. The concept of green
banking is catching up in 21 India and banks are actively looking for
ways to portray themselves as a Green Bank.

 Its potential contribution to knowledge in the field of social

relevance or National importance The importance of Green Banking
is immense for both the banks and economy by avoiding the risks
involved in banking sector. The adoption of green banking strategies
will help the bank to deal with credit risk, reputation risk and legal risk
involved in their business operation. Green banking strategies involves
two components:  Managing environment risk, and  Identifying
opportunities for innovative environmentally oriented financial
products. To manage environmental risk, the banks have to design
proper environmental management systems to evaluate the risks
involved in the investment projects. The risks can be internalized by
introducing differential interest rates and other techniques. Moreover,
bank can withdraw itself from financing high-risk projects. The second
component of green banking entails creating financial products and
services that support commercial development with environmental
benefits. This includes investment in renewable energy projects,
biodiversity conservation, energy efficiency, investment in cleaner
production. Thus, the banking activities impose significant impact on
society and thus are considered of a great national significance. 1.11
Structure of the Report This part contains the entire structure of the
report with a brief introduction of each chapter included in the study.
The complete research work is completed in six well-knitted chapters
along with a rich bibliography and questionnaire.
Organizational structure and placement: A green bank can take
many forms. Green banks can be newly created entities, or it can be
created by repurposing an existing entity. A green bank can be a direct
part of Organizational structure and placement government, such as a
subdivision of an existing agency. The New York Green Bank, for
example, is a division of the New York State Energy Research and

23
 Development Authority (NYSERDA). A green bank can also be a
quasi-public instrumentality, such as a wholly owned non-profit public
corporation. The Connecticut Green Bank, for example, is a quasi-
public entity with both government officials and independent directors
serving on its board. A green bank can also an independent non-profit
entity administered by the government, either through a contract, or by
purpose-building an entity to serve as green bank. The Montgomery
County Green Bank, for example, is a nonprofit organization that was
purpose-built in accordance with legislation and serves as Montgomery
County's green bank as a result of a resolution of the County Council.

 Sources of capital Green banks are usually seeded with public capital,
and that capital can come from a wide variety of channels. The green
bank finance model preserves limited supplies of public capital,
allowing each dollar to be recycled continuously and utilized for
multiple clean energy projects.

 Ratepayer surcharge A state or local government may place a small

surcharge on energy bills within its … jurisdiction, and may require
that the funds raised by this charge be disbursed to a green bank. Or the
government may repurpose an existing surcharge and direct the
revenue to a green bank. The surcharge can provide green banks with a
yearly influx of capital.[26] The Connecticut Green Bank and New
York Green Bank are capitalized in part by a systems benefit charge.

 Bond issuance Green banks can also issue bonds to obtain capital.
Public sector bonds have the benefit of being tax exempt, allowing
governments and other public authorities to pay relatively low interest
rates to bond owners. A green bank's bonding authority allows debt
investors to secure a steady stream of payments from an institution
with a low risk of default. In exchange, the green bank receives capital
that it can immediately invest in clean energy deployment.

24
 Types of bonds

Green banks can be capitalized by bond issuances that are

backed by state in which the green bank exists

 .Green banks can also be capitalized by issuing bonds that are backed
by the green bank itself.

 Green banks can raise capital by issuing project bonds that are backed
by the revenue-generating potential of the projects they will fund.
Revenue Bonds from a Dedicated Cash Stream

 Other bonds backed by a dedicated cash stream (such as ratepayer fees,

or by auctions of emissions allowances) can be issued to generate
capital for a green bank.

 If a green bank is short on capital, it can securitize loans it has issued

(assets) and, through a secondary market, sell them to another investor
as a bond. For example, the Connecticut Green Bank sold $30 million
in bonds backed by commercial efficiency loans to Clean Fund.

 Industrial revenue bonds and private activity bonds can be issued for
certain green bank activities.

 Revenue from carbon pricing Green banks can also be partially

capitalized by the revenue raised from various carbon pricing policies
such as carbon taxes, fees, and cap-and-trade systems. For example,
both the NYGB and the CGB are capitalized in part by the revenue
each state raises through the … Regional Greenhouse Gas Initiative
(RGGI).

 Direct budget appropriation A government can allocate dollars to a

green bank as a part of its regular budget and appropriations process.

 Re-allocation of existing funds Sometimes an existing investment fund

will be underused or completely unused. It may be possible to re-
allocate some such funds and put the dollars to work in a green bank.

25
 Pension funds Pension funds can invest in deals or portfolios of deals
generated by green banks.

 Foundations Foundations can make grants to green banks to fund

startup costs, or they can make program-related investments in green
banks and earn a return on their money in a way that is aligned with
their mission.

 Community development financial institutions Community

development financial institutions (CDFIs) can co-invest or provide
startup capital for green banks. CDFIs can also provide important
technical expertise in certain areas of green bank activity.

 Federal sources in the US

 The USDA and its Rural Utilities Service (RUS) program provide
funding for infrastructure projects, including energyrelated
infrastructure, to rural communities. The RUS has funding available
that could be used by green banks to finance projects in rural areas. …

 The United States Department of Energy (DOE) has programs, notably

the Loan Program Office (LPO), which provides federal dollars for
innovative clean energy companies and project portfolios. A green
bank could take advantage of DOE money by building portfolios of
projects designed to meet the standard set out by the LPO.

 The United States Environmental Protection Agency (EPA) has a

Clean Water State Revolving Fund (CWSRF) which makes low-cost
financing available for various water and energy infrastructure projects.
Green banks can apply for access to these funds.

Opportunities of Green Banking in India

India as of now is at a critical juncture in scaling renewable energy to

provide energy access to many growing cities and vast rural
communities. Finance as such is one of the principal barriers to rapid

26
expansion of India’s clean energy market which is needed to meet the
ambitious national target of 175 gigawatts (GW) of solar, wind and
other renewable energy by 2022, as well as broader targets of Paris
Climate Agreement. As such financing must be not only abundant but
also cheap so that clean energy can certainly compete with fossil fuels.
Also plentiful and low cost capital will allow India to transition to a
much cleaner platform while enabling continued economic and
sustainable growth. Even tough the investment in renewable energy
and energy efficiency is growing at a good pace both internationally
and in India, the scale of investment does not yet match the scale of
financing needed to grow rapidly. In order to reach India’s solar, wind
and efficiency targets to increase clean energy access in the next six
years or so from now over $140 billion of investment is required.
Significant, sustained and collaborative efforts are required from
various stakeholders, including government, various financial
institutions, industry, investors and research organizations in order to
develop innovative financial solutions to achieve the desired targets.
To enable renewable energy investments to scale up to needed levels in
India strong policy settings and incentive structures must be adopted.
More importantly dedicated ‘Green financial institutions’ known as
green banks are proving to be successful at both state and national level
at leveraging public money to bring in private capital. An Indian green
bank in this regard can help propel India’s solar wind and energy
markets and also support critical energy-efficiency and climate
resilience projects.

Growth of Green Banking The most important theme of twenty first

century are the Environmental protection and sustainable ecological
balance and it became an important issue that must be considered by all
functional areas including banking. Green banking involves
environmental and social responsibility. This word is new in Indian
banking and it appeared in 2009 when there were concern on
environment conservation and it was realized that banks can play a big
27
role in this movement. Green Banking encompasses a wide variety of
banking services. The banks are providing finance to primary
metallurgical industries, paper and pulp, pesticides / Insecticides,
fertilizers, chemical / pharmaceuticals, textiles etc. and bank may play
a big role by scrutiny of investment projects from the environmental
angle. Banks have now started to obtain NOC from respective state
pollution control board. Many banks are promoting online banking
services as a form of green banking. Benefits of online banking include
less paperwork and less driving to branch offices by bank customers.
Green banking also reduces the expenditure of bank and branch by
minimizing the use of paper work and mailing fees. Thus green
banking not only important for environmental point of view but also
mitigate the credit risk, legal risk and reputation risk (Verma, 2012).
The few banks who have adopted green banking in their banking
business include:

GREEN BANKING STRATEGIES Indian Banks can adopt green

banking as business model for sustainable banking (Verma, 2012).
Some of following strategies little reflected in their banking business or
must be adopted by banks.

1. Carbon Credit Business: Under the Kyoto Protocol, all Nations must
reduce greenhouse gases emission and reduce carbon to protect our
environment. These emissions must be certified by Certified Emission
Reductions (CERs), commonly known as carbon credit. The Indian
Bank may start this business as in London the business of carbon credit
is around 30 Billion Euro.

2. Green Banking Financial Products: Banks can develop innovative

green based products or may offer green loans on low rate of interest.
As Housing and Car loan segments constitute the main portfolio of all
banks so they adopt green loans facility. SME loans on the basis of
National Environmental Policy and its certification through ISO 14000.

28
 3. Paperless Banking: All banks are shifting on CBS or ATM
platform, also providing electronic banking products and services. So
there is ample scope for banks to adopt paperless or lee-paper banking.
Private and foreign banks are using electronics for their office
correspondence but still in PSU banks they are using huge paper
quantity.

The demand for green finance

Any figures on the existing supply of green finance need to be put into
perspective vis-a-vis the demands to enable better decision making. A
proxy for a ‘sufficient amount’ of green finance needs to be
established, ideally per financial instrument, as linking green finance
needs with the best-suited disbursement channel is important for its
success.45 This ‘demand side’ can be backed by information from
countries’ national regulations and development plans, national
research institutes, and business associations or companies’ strategy
announcements. Even though general political targets for
environmental action including climate change are set in many
countries, and businesses are following with their own pledges, only a
few countries and companies have announced any clear targets on how
to involve the private sector in achieving the greening of the economy.
Approaches on modelling finance needs in the real economy for the
implementation of a zero-net carbon and green economy still remain
rather abstract, especially when it comes to a breakdown for specific
financial instruments. The Two Degree Investing Initiative’s (2DII)
suggestion of a ‘Climate Capital Monitor’ provides an interesting
outline of how to analyze policy targets for that purpose through the
linkage of physical asset level data with information on ownership of
securities (see table 2). Such work needs further development to
achieve a supply-demand comparison that can ultimately provide
policy makers and private market participa The supply of green
finance by banks

29
In alignment with the G20 GFSG this report considers banking, bonds
and institutional investors in turn. This chapter provides an overview of
green finance tracking for banks by applying the methodology outlined
above. The analysis prioritizes banking as relatively little work has
been done so far to measure green banking flows. The focus is further
narrowed to the loan market as loans represent the largest share of
banks’ activities46. The challenges identified in doing this analysis are
contextualized and described below, in a manner consistent with those
outlined in Figure 2. The first challenge identified there, distinguishing
between pure investments and actual projects financed, does not apply
to loans, as they can directly finance real economy activity

GREEN TECHNIQUES USED IN VARIOUS BUSINESS

OPERATIONS

A. Enterprise Resource Management It includes various techniques for

the work force, part optimization and for the intelligent device
management. It uses online platform and promote paperless
transaction.

B. Supply Chain Management The supply chain management that

comes under the operation department adopts various techniques to
reduce the inventory levels and wasted freight. It also adopts network
design using carbon footprints.

C. Product Life Cycle Management The main aim of the green banking
is to reduce the carbon footprint, so the bank design and offers the
banking product and the services in a manner that uses less energy,
resources as a result the bank will be able to reduce the carbon
footprints.

D. Customer Relationship Management Maintaining contacts with the

customers are an important process of the organization. Now day’s
banks are maintaining this relation by using the online platform instead
of the paper work. It will also result in the paper works of an
organization.

30
Green services provided by the bank: Bank provided the goods and
services in order to meet the need of the customer and also to satisfy its
role in sustainability development. Banks are using electronic and
telephone banking, which helps the customers to get access to the
banking process at anywhere at any time. Automatic payment reduces
the role of the customers to write, so the customer can send the cheque
and also have the facility to cheque and know the current position of
the cheque. Bank provides the financial statement such as the income
statement and position statement in the electronic form instead of the
paper format. Banks focus and promote mutual funds that focus on
investment in green companies. Banks also offer special line of credit
to help the homeowners. Banks offers credit cards co-branded with
environmental charities.

Advantages of Green Branches Banks incur huge infrastructure

expense in setting up its branch network for business expansion. The
main advantage is that it provides cost-effective solution. It means
carries low cost for the benefits provided. The recent report of ASLA
states that the green infrastructure offers benefits and its maintenance
expense could be less. During the initial stage the green infrastructure
is costly but as a long-term process, it provides many financial benefits.
Green infrastructure project is more content specific. The advantages
of Green Infrastructure are: (1) It will reduce the equipment,
installation cost etc., (2) It will be able to reduce the operation cost, (3)
Reduce off-site costs, (4) Reduce land acquisition cost, (5) Reduce
repair and maintenance cost, (6) Reduce Infrastructure replacement
cost. These are the various advantages of adopting Green
Infrastructure. This will help the organization to reduce the cost that
will help them to achieve the profit. III. GREEN with meaningful and
comparable conclusions for required action FINANCING Green
financing means it is the process of investing our valuable fund and
resources in a manner which would not affect the environment.
Investing in a sustainable friendly manner. As a step to build green
economy, banks finance green projects that reduce the pollution.

31
Banking industry is not an infesting industry. Nowadays the energy
consumption is becoming more and more it increases the carbon
emission and as sometimes banks are completed to finance for projects
which are not environmental friendly, increasing paper waste, large
number of non-ecofriendly buildings etc. that will create problems to
the economy. So green financing will help to overcome these issues to
an extent. As a part of moving green banks will adopts the process,
products and technology which are eco-friendly and help in sustainable
business. According to [21], Green banking products and services are
mainly classified as four. They are (1) Retail Banking (2) Corporate
Investment Banking (3) Asset Management (4) Insurance

Green lender Ethical Banking concepts are introduced in two ways.

The first one includes the manner a business is done. Whether it
conducts the activities by promoting the online channel or by paper
works. There are many initiatives from the side of the central bank of
India in order to promote e banking in the banking sector. The second
one includes where the bank invest their money. Ethical banking
promotes environmental friendly investment and gives more priorities
to the projects that encourage green ideologies and also return to the
nature. There is no certain regulation for central banks on ethical
banking but in the circular of RBI it is mentioned about CSR initiatives
that the financial institution primarily wants to adopt.

Origin of Green Banking First Green bank was a commercial that was
based on Florida and it is called Mt. Dora and it was a united state
based bank and begun its operation in 2009.Bank was recognized for
their environmental friendly initiatives. One of the specialty of the
organization was the employees in the organization have a LEED
accredited professional designation. It was one of the criteria that were
set by the bank.

32
Green Banking: An Innovative Strategy for Sustainable Development
Climate change is the most complicated issue the world is facing.
Across the globe there have been continuous endeavors to measure and
mitigate the risk of climate change caused by human activity. Many
countries the world over have made commitments necessary to mitigate
climate change. India has committed to cut its domestic carbon
intensity by 20-25 percent from 2005 levels, by the year 2010. As
socially responsible corporate citizens (SRCC), Indian banks have a
major role and responsibility in supplementing government efforts
towards substantial reduction in carbon emission. Although banks are
considered environment friendly and do not impact the environment
greatly through their own ‘internal’ operations, the ‘external’ impact on
the environment through their customers activities is substantial.

Ethical Socially
Responsible

Green
Banking

Sustainable

The banking sector is one of the major sources of financing industrial

projects such as steel, paper, cement, chemicals, fertilizers, power,

33
textiles, etc., which cause maximum carbon emission. Therefore, the
banking sector can play an intermediary role between economic
development and environmental protection, for promoting
environmentally sustainable and socially responsible investment.
‘Green banking’ refers to the banking business conducted in such areas
and in such a manner that helps the overall reduction of external carbon
emission and internal carbon footprint. To aid the reduction of external
carbon emission, banks should finance green technology and pollution
reducing projects. Although, banking is never considered a polluting
industry, the present scale of banking operations have considerably
increased the carbon footprint of banks due to their massive use of
energy ( e.g., lightning, air conditioning, electronic/electrical
equipments, IT, etc), high paper wastage, lack of green buildings, etc.
Therefore, banks should adopt technology, process and products which
result in substantial reduction of their carbon footprint as well as
develop a sustainable business.

Green banking for sustainable development

“Green finance is a strategy for financial sector and broader

sustainable development” (UNDP, 2016, p. 4). In terms of banking
operations, “Green finance refers to banks that provide financial
assistance to environmentally responsible projects” (Saleena, 2014, p.
28). Previously, people thought that the activities of financial
institutions do not have much influence on the environment, because
the products of the financial industry has no physical form and no
waste into the environment. However, the banking sector is the main
source of financing for commercial projects and contributes
significantly to economic growth. As a result, the banking sector plays
a decisive role in promoting investments towards sustainable
environmental development and community responsibility.

Banks themselves may not be polluters, but they may be related to

companies or investment projects that pollute the environment at

34
present or in the future. The banking sector is generally considered to
be environmental friendly in terms of emissions and pollution. The
environmental impacts inside the banking sector such as energy use,
paper and water are often not substantial. The bank's environmental
impact is not directly caused by banking activities, it is created by the
bank's clients. Therefore, Thombre (2011) showed that the impact of
external activities of banks, though very large, is difficult to estimate.
Moreover, in the banking sector, environmental risks management is
quite similar to risk management.

Good environmental risk management will improve the quality of the

portfolio, thereby increasing the value of the business and reducing the
loss ratio. Therefore, one of the major responsibilities of the banking
sector for sustainable development is to encourage investment in
environmental protection projects, and to be cautious about granting
credit. Those who intend to follow the green trend, may be given
priority credit by banks. It is from the dependence of capital that the
government can adopt a banking system that encourages banks to
invest in environmentally friendly projects as well as limiting pollution
and toxic projects to the environment. Engaging in green growth in this
way will turn banks from financial firms into the green banks of the
economy. “The concept of green banking emerged in 2009 with
coming of the First Green Bank based in Mt. Dora, Florida, United
States” (G. Jayabal and M. Soundarya, 2016, p. 1). Green bank Act
was introduced by Congressman Chris Van Hollen who showed that a
green bank was established under 30 the ownership of the United
States government with the aims of offering financial support to
increase the energy usage efficiency and to reduce carbon emissions
and other environmental pollution from energy creation. In addition, it
is expected that this institutions is going to work towards reducing the
country’s dependence on foreign sources, combating climate change
and creating additional jobs through the provision of healthier energy
generation facilities. Several concepts of green banking have been
developed.

35
 “The term green banking generally refers to banking practices that
foster environmentally responsible financing practices and
environmentally sustainable internal processes” (Rahman and Barua,
2016, p. 2). In a report named “What is the Meaning of Green
Banking ?”, Clark Schultz (2012) stated that green banking means
promoting environment-friendly practices and reducing carbon
footprint from banking activities (Schultz. C, 2012), while Singhand
Singh (2012) explained more clearly that green banking signifies
encouraging environment-friendly practices and plummeting carbon
footprint by banking activities through various environment-friendly
acts. Bahl (2012) observed that “ Green Banking refers to the banking
business conducted in selected area and technique that helps the overall
reduction of external carbon emission and internal carbon footprint”
(Bahl, 2012, p. 1).

In the study of Millat et al. (2013), green banks can be approached in

two directions: firsly, green banking aims greening the internal
operations of the bank and secondly, funding for environmentally
friendly projects, focusing on the social – environmental assessment in
appraising process. Singal, Singal, and Arya (2014) stated that green
banking focus on the environment by reducing carbon footprint both
internally and externally. Specifically, the bank reduced its carbon
footprint by implementing online operations, using Automatic Teller
Machines, mobile banking, cards, e-mail exchanges, etc., to minimize
the associated activities to paper, stationery, and air conditioners. For
the purpose of reducing emissions outside the bank, bank’activities to
reduce emissions by providing green credits for environmentally
friendly projects, priority financing to green industries. Moreover,
through external activities, “Green banking is a step to change client
habits in the banking sector for the sustainable development in future.
Online banking is the easiest way to green banking” (Garg. S &
Sharma. V, 2017, p. 420). Therefore, “green banking is defined as the
operation of banking activities while giving special attention to social,
ecological and environmental factors with the aim of the conservation

36
of nature and natural resources. Without changing its main banking
functions, a green bank can grow through applying environmentally
friendly policies throughout every sector of its activities” (Arshad
Chowdhury. A & Dey. M, 2016, p. 34), and “Green banking is similar
to a normal bank which considers all the social, environmental and
ecological factors with an aim to protect the environment and conserve
natural resources” (Pappu Rajan. A & Prasath. J, 2016, p. 2). The idea
of “green banking” will benefit both banks, industry and the economy.
Green banking will 31 not only promote the greening of the economy
but it will also increase the quality of bank’s assets in the future (Huan,
2014). Green banking not only focus on economic development but
also environmental and social issues. They promote environmental
protection in their operations through methods such as applying
environmental standards in credit approval process or preferred credit
products for carbon dioxide reduction projects, clean energies and
clean products. The banks also apply green standards internally. Thus,
green banking means promoting environmentally friendly practices and
reducing carbon footprint from banking activities. This comes in many
forms: using online banking instead of branch banking, paying bills
online instead of mailing them, opening up CDs and money market
accounts at online banks, instead of large multi-branch banks, or banks
support local green initiatives. Therefore, together with the providing
credits for the implementation of environmental protection projects,
green banking means to promote environmentally friendly practices
and reduce carbon emissions from internal operations of the bank.
There are many ways to do this such as: using online banking instead
of a branch banking, paying bills online instead of mailing, opening up
CDs and online money market accounts at online banks instead of large
multi-branch banks or a bank supporting local green initiatives. So,
green banking is a bank with activities moving toward sustainable
development.

It is required that there should be a paradigmatic change in thinking

about economics, business and finance of green banking. The success

37
of green banking would be greater if governments around the world
started to revise their economic paradigms from being “monetary
economics” to “ecological economics” and began to transform their
accounting principles purely financially into eco-energy accounting
models. Then banks are much more resposible to environment. “The
term green banking means developing inclusive banking strategies
which will ensure sustainable economic development” (Ahmad, Zayed
and Harugreen banking focuses on the green transformation of internal
operations of all banks. It means all the banks should adopt appropriate
ways of utilizing renewable energy, automation and other measures to
minimize carbon footprint from banking activities. Secondly, all banks
should adopt environmentally responsible financing, thinking
environmental risks of projects before making financing decisions and
in particular supporting and fostering growth of upcoming green
initiative projects. Green Banking is not only about making sustainable
use of resources but also about environment friendly dispensation of
credit (Jayabal, G., & Soundarya, M., 2016). Both 32 of Habib (2010)
and Goyal & Joshi ( 2011) state that a green bank is also called ethical
bank, environmentally responsible bank, socially responsible bank, or a
sustainable bank, and is expected to consider all the social and
environmental issues.

“Green banking system concentrates the following: Sustainable

banking, Ethical banking, Green mortgages, Green loans, Green credit
cards, Green savings accounts, Green checking accounts, Green money
market accounts, Mobile banking, online banking, Remote deposit,
Waste Management, Roof Gardening, and Green Financing” (Pappu
Rajan. A & Prasath. J, 2016, p. 2). To sum up, green banking can be
defined as an approach that recognizes the role of banks in promoting
long-term economic development, not only in terms of economic but
also on social and environmental responsibility. Green banking is
similar to other banks but takes environmental and social
considerations into account by reducing carbon emissions by

38
encouraging green credit operations and greening the internal activities
of banks.

GREEN BANKING SCENARIO IN INDIA

India being one of the most fast emerging economies of the world has a
vital role in ensuring that development and growth are sustainable in
nature and the any adverse impact of industry on ecology should be
avoided. The country emits 6% of the total global CO2 emission2 with
the metropolitan cities contributing the maximum to greenhouse
emissions. The various polluting industries in India are primary
metallurgical industries namely zinc, copper, steel etc., paper & pulp,
pesticides/ insecticides, fertilizers, tanneries, sugar, textiles, chemicals/
pharmaceuticals etc. These industries rely heavily on banks for funding
needs. Thus, the banking operations should ensure that financing is
provided to the company’s managing environment and ecology to keep
the nature in equilibrium. The Reserve Bank of India (RBI) issued a
circular Dec 2007, emphasizing the important role banks play in
establishing institutional mechanisms to contain sustainability and so to
act responsibly. One of the primary lenders to MSMEn, 2013, p. 1).
Green banking thus involves a two pronged approach: Firstly, sector,
SIDBI, has committed itself to achieve sustainability by incorporating
Environmental and Social (E&S) aspects in its core business. The
Government of India has issued guidelines / instructions to banks on
Green Initiatives. In order to implement the green initiatives of the
government, all public sector banks and all regional rural were asked
to: • Increase use of Electronic Payment. • Increase use of Core
Banking Solution (CBS). • Increase use of Video Conferencing. • Offer
centralised payment system through sub-membership route to all
banks to facilitate direct Electronic Benefit Transfer (E

39
 Research Methodology

OBJECTIVES

• To know the importance of Green Banking.

• To identify the steps necessary to adopt green banking.

• To identify the initiative taken by banks for sustainable development.

• To know the challenges and benefits of green banking.

SCOPE OF GREEN BANKING IN INDIA

There has been a remarkable improvement in the working of banks in

terms of cutting costs, increasing productivity, improving the
profitability, controlling and management of the Non-Performing
Assets (NPAs), face the risks, carry out the Asset Liability
Management, manage the changes in interest rates, handle the foreign
exchange rate fluctuations, comply with the regulator’s requirements

40
and finally improve the customer service to their best satisfaction.
Green banking avoids as much paper work as possible and rely on
online/ electronic transactions for processing so that we get green
credit cards and green mortgages. Less paperwork means less cutting
of trees. It also involves creating awareness to banking business people
about environmental and social responsibility enabling them to do an
environmental friendly business practice.

Significance of the study

Green Banking is an umbrella term referring to practices and

guidelines that make banks sustainable in economic, environment, and
social dimensions. It aims to make banking processes and the use of IT
and physical infrastructure as efficient and effective as possible, with
zero or minimal impact on the environment. Enterprises are now
increasingly interested in establishing and implementing strategies that
will help them to address environmental issues and also pursue new
opportunities. The reasons for going green are manifold, and the key
among them are: increasing energy consumption and energy prices,
growing consumer interest in environmental friendly goods and
services, higher expectations by the public on enterprises'
environmental responsibilities and emerging stricter regulatory and
compliance requirements. Further, enterprise will increasingly feel the
effects of environmental issues that impact their competitive landscape
in ways not envisaged earlier. Government agencies, investors and the
public are demanding more disclosures from enterprises regarding their
carbon footprint and their environmental initiatives and achievements.
Banks affect the environment indirectly by financing intermediaries
who are the major source of long term funding to various industries
that pollute the environment heavily. Hence, it is imperative to
understand the need for sustainable practices for banking. Foreign
countries have understood the need of green banking and creating
many opportunities in their country to develop this but in India, the

41
concept of green banking is catching up and banks are actively looking
for ways to portray themselves as a Green Bank. So need is to create
new strategies to develop Green banking in India and aware the public
about the need and importance of green banking.

Need of study

Green banking is comparatively a new development in the financial

world. Green banking means promoting environmental friendly
practices and reducing corbon footprint from banking activities. also
highlight the various strategies of banks for sustainable development.
In my opinion green banking play vary vital role for maintaining eco-
friendly production through providing various type of investment in
those company, who producing eco-friendly product in returns
consumer able to get good quality good, and also providing
employment opportunities.

In short these study providing details knowledge of green banking

strategies and also useful to understand green banking benefits given to
organization, providing employment opportunities, environmental
protection etc.

METHODOLOGY

This is an exploratory research thus methodology was based on

literature review and secondary data. The research took place in two
phases: The first phase was an up-to-date literature review on Green
Banking and sustainable development in the banking sector and
particularly in green banking that identified results, and suggested
future steps. The second phase included data collection about Indian
banks through secondary published sources . Secondary published
sources were the reports on Green Banking and other relative
information published on the banks and other internet sites.

LIMITATIONS

42
a. Diversification matters Green banks will be screening their
customers and naturally, they‟ll be limiting and restricting their
business to those entities that qualify. With a smaller pool of
customers, they‟ll automatically have a smaller profit base to support
them. If they focus their loans oncertain industries, they open
themselves up to being much more vulnerable to economic shifts.

b. These banks are still startups apparently; it takes 3 to 4 years for a

typical bank to start making money. Many green banks in business
today are very new and are still in startup mode. It doesn’t help that
these banks are trying to get their footing during a recession.

c. Banks are “specialized” The main goal of a green bank is to do good

by supporting those who are taking care of the environment, which
involves money. Saving the environment does not necessarily equate to
“making a profit”. Hopefully though, this premise is proven wrong in
this case and that green banks prove that they can survive, even as they
face restrictive requirements for doing business

. d. Operating expenses and costs are higher Green banks require

specialized talent, skills and expertise as well, due to the kind of
customers they are servicing. Employees, such as loan officers, need to
have additional background and experience in dealing with green
businesses and consumers. Plus, giving breaks to such clients via
discounted loan rates can eat at their profit margins.

e. Reputation Risk In all likelihood, due to growing awareness about

environment safety, banking institutions are more prone to lose their
reputations if they are involved in big projects, which are viewed as
socially and environmentally damaging. There are also few cases
where environmental management system has resulted in cost savings,
increase in bond value etc.(Heim, G et al, 2005). In few cases the
environmental management system resulted in lower risk, greater
environmental stewardship and increase in operating profit. Reputation
risks involved in the financing of ecologically and ethically
questionable projects

43
 REVIEW OF LITERATURE

According to RBI (IRDBT, 2014), green banking is to make internal

bank processes, physical infrastructure and IT infrastructure as
effective and efficient as possible, with zero or minimal impact on the
environment. They had introduced green rating standards for Indian
banks, which are termed as ‘Green Coin Ratings’. Under this rating
system, banks are judged on the basis of carbon emissions from their
operations and on the amount of recycling, refurbishment and reuse
material being used in their building furnishings and in the systems
used by them like servers, computers, printers, networks, etc. They are
also being judged on the amount of green projects finance by them and
rewards or recognitions given to borrowers for turning their businesses
greener. Green banking services helps the banks towards the
sustainable developments of the banks. In this context many authors
expressed their opinions on the previous and recent developments and
trends in the banking sector relating to the green banking.

Jeucken (2001) highlighted important differences between regions,

countries and banks with regard to sustainable banking. Jeucken

44
identified four stages: defensive, preventive, offensive and sustainable
banking.

Chowdari Prasad (2002) has studied the Impact of Economic

Reforms on Indian Banking and suggested how banking sector will
face the changes and challenges. Hopwood, 2005, highlighted the need
for change it would be agreed that transformation in the usual model
for the sustainable development is essential in order to understand the
evolution of the banking sector towards sustainability. McKinsey &
Co. (2007) On the top of all these, there is certainly the aspect of
profitability and productivity for all these banks to achieve.

Douglas (2008) found four key findings: (a) banks are increasingly
discussing climate change business opportunities in their annual
reports, (b) twenty eight of the forty banks have calculated and
disclosed their greenhouse gas emissions from operations, (c) growing
demand for climate friendly financial products and services is leading
banks into new markets, and (d) investment banks have taken a leading
role in supporting emissions trading mechanisms and introducing new
risk management products.

Sudip Kar Purkayastha (2010) Such measures also yield the banks in
offering top class service to attain Customer Satisfaction, particularly
at a time there is stiff competition amongst the different types of banks,
i.e., Public, Private, Foreign and others. Mohmed Aminul Islam (2010)
Green Banking is also gaining importance in recent times. While the
banking industry is undergoing computerization, networking and
offering of on-line banking is naturally gaining momentum.

Ela Sen (2010)Besides several benefits of computerization like speed,

accuracy, ambience, efficient handling of sizeable business, etc., there
is a factor like paper-less business resulting in waste management, eco-
friendliness and pollution control.

Goyal KA and Vijay Joshi (2011) One side bankers are expecting
more business through customer satisfaction but on the other side, the

45
technology effect makes the customers not coming to the bank but
bank is going to the doorstep of the customers.

Nigamanda Biwas (2011) interpreted Green Baking as combining

operational improvements, technology and changing client habits in
market place. Adoption of greener banking practices will not only be
useful for environment but also benefit in greater operational
efficiencies, a lower vulnerability to manual errors and fraud and cost
reductions in banking activities. He stated that the concept of green
baking will be mutually beneficial to the banks, industries and
economy. Not only green banking will ensure the greening of the
industries but it will also facilitate in improving the asset quality of the
bank in future. He has listed several benefits of green banking.

Alice Mani (2011) indicated that as Socially Responsible Corporate

Citizens (SRCC), banks have a major role and responsibility in
supplementing governmental efforts towards substantial reduction in
carbon emission. Bank’s participation in sustainable development takes
the form of Green Baking. The author examined and compared the
green lending policies of banks in India in the light of their compliance
and commitment to environment protection and environment friendly
projects. It was opined that Banks in India can implement green
lending.

(UNEP) Green Finance or Green Banking refers to diverse financial

services and products provided by financial institutions for sustainable
development (UNEP FI, 2007). Green finance was firstly raised at the
beginning of 1990’s, when the United Nations Environment Program
(UNEP) worked with industry to develop environmental management
strategies that they were convinced that the financial industry
maintaining their businesses might have a significant influence to the
environment (UNEP FI, 2010). In fact, this concept has been
mentioned for several years. But to date, it has not yet been
normatively defined by any international bodies, as it depends on
specific financial entity allocating capital to specific purpose with

46
integrating environmental and sustainability factors. There are some
major concerns about environmental issues. Therefore, organization
needs to pay attention to their outputs whether they are violating
environmental issues or not. At SBI Bank, it is believed that profit
should not be earned at the expense of the world's most pressing
environmental problems.

Jha & Bhome (2013) did the empirical study on the steps that can be
taken for going green in the banking sector and to check the awareness
among bank employees, associates and the general public about green
banking concept. They did this study by collecting data from 12 bank
managers, 50 bank employees and 50 general customers. The authors
were of the opinion that online banking, green loans, power saving
equipments, green credit card, use of solar and wind energy and mobile
banking were some of the strategies that should be followed for going
green. The results of the study were, banks should adopt environmental
standards of lending, which results in improving the asset quality of
banks. The rate of interest on loans given for green projects should
comparatively less than the normal rate of interest. Companies can
increase their profitability by reducing or recycling of waste generated
and also by adopting sustainable measures to go green.

Dharwal & Agarwal (2013) studied that green banking is a key in

mitigating the credit risk, legal risk and reputation risk. The author had
suggested some green banking strategies like carbon credit business,
green financial products, green mortgages, carbon footprint reduction
(paperless banking, energy consciousness, mass transportation system,
green building),

Rajesh and A.S. Dileep (2014) concluded that Green Banking is an

umbrella term referring to practices and guidelines that make banks
sustainable in economic, environment, and social dimensions. Green
banking can be an avenue to reduce pollution and save the environment
aiding sustainable economic growth. Before making the decision to
finance a project, banks must see its environmental risks and ensure the

47
 project players have environmental safety measures in their plans,
including recycling facilities or smoke and gas arresting units. A
framework of incentives for responsible banks and disincentives for
pollutants is an essential element for the development of green
banking. owards the society.

ANALYSIS OF DATA INTERPRETATION &

REPRENTATION

Primary data (Questionnaire for commercial banks)

Note: the following primary data given on the basis of after visiting
bank of India, YES bank, and bank of Baroda etc.

Q1: Do you provide green finance…?

Ans: as per the responses of all banks, data collected about green
finance are provides by maximum number of banks, above diagram
show that maximum types of banks provides green finance to the
organization to produced eco-friendly product, big banks like yes bank,
state bank of india maintain certain amount to provides loan in the
form of green finance, some small banks not able to provides green
finance that’s why India still not perform very while in providing green
finance.

48
Q2: RBI provides any subsidy if banks are follow the green
banking…?

Ans: as per the maximum banks opinion that, RBI provides various
types of subsidy and financial help to undertaking the green banking
activity.

As per the above diagram show mix-up responses given by banks these
question maximum percentage of banks strongly agree, some banks
just agree, but remaining banks provides negative response.

49
Q3: Do you charge low rate of interest on green finance compared to
other normal loan..?

Ans: as per the survey report the banks charge less rate of interest on
green finance compared to providing any other normal loan, because
the main reason that to encourage the organization to obtain green loan
from the bank. If they obtain loan from bank then bank able to put
condition about protection of environment along with providing
finance to the particular project, it is the main strategies of bank to
developing green finance activity in India

Q4: Do you encourage to organization to obtain green finance, if yes

why?

Ans: majority of commercial banks says that, they encouraging to the

organization to obtain green loan through green finance, because green
finance directly given preference to development of economy along
with protection of environment.

50
Q5 green bank help to reduce carbon emission? If yes how

Ans: majority of banks says that, core activity of green banking is to

reducing carbon emission through undertaking various green banking
activity like providing green finance, utilizing less paper work in turns
less cutting of trees, utilizing solar energy for ATM facility, providing
online baking facility etc

Q6 Do you provides special preference to those who obtain green

finance, if yes why?

Ans: As per the responses given by various banks, we found that banks
especially some private and public sectors bank provides special

51
preference to those who obtain green loan from bank, it means banks
provide special priority to provide loan to those project, who
voluntarily take green loan, bank but some small co-operative banks
not able to undertaking those activity, it but those who is also important
strategy undertaking by bank for development of green banking in
India.

Q7: which type of financial instrument your bank can use for green
finance?

Ans :as per the collecting various bank response banks mostly prefer
green loan, it means banks provides finance the project who voluntarily
come and demand for green financing into the project and also now
banks voluntarily invest green capital into some big green project like
solar energy project, producing of green eco-friendly product. Now
some privet company’s issued his green bond instrument for
encouraging investors to invest capital into particular green project, so
green banks voluntarily purchasing that green bond for developing
Indian economy along with the protecting environment.

Q8: which type of company can obtain green finance from your bank..?

Ans: as per the Responses given by many banks says that any person
individually or group together voluntarily able to borrowing green
finance but with condition of protecting environment. They says ,
many borrower or production firm voluntarily apply for obtaining the
green finance, reason is that green finance obtaining procedure is very
easy compared to normal loan and rate of interest is also low compared
to normal loan so , that’s why maximum firm or organization apply for
green loan.

Q9: RBI providing you any guideline for undertaking green banking
finance..?

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Ans: as per the responses, RBI providing proper guideline to the all
types of commercial bank about to undertaking green banking activity,
RBI decided basic criteria related to green banking and deciding rate of
interest on green loan and many more details time to time updating by
RBI on his official web side.

Q10: Do you take any step to reduced carbon emission..?

Ans: there are many banks undertaking various types of activity to

reducing carbon emission explain in following point:

1: encouraging to producing eco-friendly product through green

financing.

2: providing ATM facility with utilizing solar energy.

3: reduced utilization of paper through online banking facility.

4: voluntarily invest capital by bank into green project for reducing

carbon emission.

Q11: Green banking finance while popular in borrowers…?

Ans: before few years, green banking concept is not while popular
between borrowers and most of banks wasn’t interested in green
banking system ,but now a day various commercial banks says that
green banking finance activity and demand about green loan increasing
over the period.

Q12: Do you trust that green banking finance encouraging Indian

economy..?

Ans: All the type of commercial banks, given positive response on this
question, green banking directly encouraging Indian economy through
providing green finance to the green project, taking initiative in
innovative natural green project , along with providing loan to various
green project, in returns it creates new employment opportunities along
with protecting environment.

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Q13: as per your opinion any banking modification is required in green
banking system and strategy …?

Ans: now a days green banking activity undertaking various

commercial banks along with normal banking activity, so commercial
banks not able to give proper efforts to creates good image of green
banking in market, many banks says special green banking branch
required in each commercial bank, or establish separate green banking
branch for properly undertaking various activity of green banking in
India.

Q14: green banking is beneficial for banks if yes…?

Ans: majority of banks give positive response, they feel that if banks
undertaking green banking activity then banks improve reputation of
the bank into borrowers and deposit holders mind, and also capture the
entire market. That’s why? Large private commercial banks also
undertaking green banking activity.

Q15: Do you issue green bond to obtain capital from market..?

Ans: as per the responses, now large commercial banks provides green
bond for obtain capital for providing fund into green finance, but still
some private bank not interested in these field. It is simple procedure
like issue of share for obtaining capital to carry on business activity.
Now days, some commercial bank directly invest capital into green
project through purchasing green bond from issuing authority.

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 SECONDARY DATA

Green Banking Financial Products and Services

i. Green Deposits: Banks offer higher rates on commercial deposits,

money market accounts, checking accounts and savings account if
customers opt to conduct their banking activities online.

ii. ii. Green Mortgages and Loans: The green mortgage is a type of debt
given to the customers for making their homes more energy efficient
and eco-friendly. Banks offer a green mortgage with better rates or
terms for energy efficient houses. The Ministry of Non-renewable
Resource in association with some nationa and scheduled banks
undertook an initiative to go green by paying low-interest loans to the
customers who would like to construct houses or buildings with energy
efficient designs and would like to install gadgets that are
environmentally safe like solar equipment, energy-efficient windows,
geo-thermal heating or water 14 heaters (Rouf, 2012). The savings in
monthly energy bills can offset the higher monthly mortgage payments
and save money in the long run.

iii. iii. Green Credit Cards: Green credit cards are helpful in reducing
the personal carbon footprint of each and every client. The scheme is
mainly launched in order to increase the use of plastic money (debit

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 and credit cards) in place of currency notes. A green credit card
facilitates cardholders to earn rewards/points through redeeming it for
contributions to eco-friendly charitable organizations. These cards
offer an excellent incentive for consumers to use them for their
expensive purchases. As per a research if a person spends $1 from
his/her green card then the carbon emissions would be reduced by two
to four pounds. It means that if a person is spending $100 per week
through green card then as per the calculations, it would be possible to
stop 20,000 pounds of carbon emissions per year.

iv. iv. Green Reward Checking Accounts: It is a bank product called

reward checking accounts which pay a bonus to customers who are
going green. This account helps the environment by utilising more
online banking services (Roux, 2015) like online bill payment, debit
cards, and online statements. Customers can earn higher checking
account rates if they meet monthly requirements that might include
receiving electronic statements, paying bills online or using a debit or
check card. Higher rates and eco-friendly living go hand-in-hand with
this banking product.

v. Mobile Banking: Mobile banking has the ability to check balances,

transfer funds or pay bills from a mobile phone, which saves time and
energy of the customers. It also helps in reducing the use of energy and
paper of the bank. Most of the Indian banks have introduced this
paperless facility.

vi. Online Banking: Online banking is the developing concept in

young and corporate India. Online banking helps in additional
conservation of energy and natural resources. Online Banking includes:
 Paying bills online,  Remote deposit, 15  online fund transfers, and
 online statements. It creates savings from less paper, less energy, and
less expenditure of natural resources from banking activities.
Customers save time by avoiding standing to queues and paying the
bills from home online.

56
 vii. Banking through ATMs: ATMs are becoming more powerful
than before and banks are consciously driving its usages with the
concept of branchless banking. A visit to an ATM helps customer
accomplish myriad value-added transaction services like utility
payments, pre-paid mobile re-charge, credit card payments, tax
payments and much more.

Carbon Footprint Reduction Carbon footprint is a measure of the

impact of activities on the environment. It relates to the amount of
Green House Gases (GHG) (Gibbs and O’Neill, 2012) producing in
day-to-day business while burning fossil fuels for electricity, heating,
transportation, etc. Banks can reduce their carbon
footprints by adopting the following measures:

Paperless Banking: Banks are switching their customers towards

Online Banking and Mobile Banking to promote paperless banking.

. Energy Consciousness: Banks save their energy consumption by

developing energy consciousness, adopting effective office time
management and automation solutions and using compact fluorescent
lighting (CFL) which helps them considerably. In order to manage their
offices and ATMs, banks are switching over to renewable energy
(solar, wind etc.) resources.

iii. Using Mass Transportation System: Banks are becoming fuel

efficient organization by providing common transport for a group of
officials posted at one office.

v. Use of Solar and Wind Energy: To go green, usage of solar and

wind energy is a preferable option. State Bank of India (SBI) has
become the first bank in the country to venture into a generation of
green power by installing windmills for captive use.

Various Strategies for Green Banking Approach

The incorporation of environmental and social strategies into the

development goals of the banks has helped in arriving at an effective

57
 management system. Accordingly Ginovsky (2009) had emphasized
that in order to implement ecologically friendly practices banks
certainly should launch new banking products which can promote the
sustainable practices and also need to restructure their back office
operations as well. The author in his writings has suggested some of
the strategies which banks can follow to be successful in green banking
operations.

 Use of paperless banking transactions which can result in reducing the

carbon footprint from the internal banking operations as well as cost
saving to bank in many ways.

 Adoption of green street lending, which offers low rate of interest to

customers and also businesses for installing the solar energy systems as
well as solar saving equipment’s According to Agarwal and Dharwal
(2013) green banking is a key in mitigating the credit risk, reputation
risk and legal risk. The author has suggested in his book some green
banking strategies like green financial products, carbon credit business,
carbon footprint reduction, green mortgages, green buildings and social
responsibility services towards the society at large. However most
banks were doing ‘Single bottom Analysis’ that is they were
considering financial performance of borrowers, but instead they
should do the ‘Triple bottom analysis’ i.e., analyzing the social and
environmental performances as well. From the empirical study, it is
found that banks can go ahead and adopt following strategies for going
green in banking:

 Engage with key stakeholders and also create awareness of

environmental issues and also their impact on the economy, the
environment and society at large

 Conduct regular energy audits and also review equipment’s purchases

and disposal policies

58
 Set SMART (Specific, Measurable, Attainable, Realistic and timely)
green goals as internal targets to reduce the carbon footprints along the
timelines

 Monitor progress regularly, watch energy trends and also new

developments. Revise green policy as and when required

 Banks should focus on green buildings across its branches to

effectively implement ecological friendly practices

 Banks can go ahead and support various projects ranging from

community clean ups to national initiatives on climate change, water,
air, biodiversity and many more

 Banks can introduce green funds for customers who would like to
invest in environment friendly projects which can help in sustainable
development

Strategic Plans of Banks to Protect the Environment: Banks must

adopt a strategic plan to perform green activities on long term basis as
well as short term basis. Government should outline a broad guideline
of green banking for environmental protection, conservation of
biodiversity. Reserve Bank of India, has a greater role in shaping up a
concrete guideline for green banking practices and each banks and
financial institutions can formulate a strategy and guideline for green
banking.

 Waste Management: A green banker must be cautious about wastage

and waste management. The banks should try to control the wastage of
resources like water, gas, electricity, paper, foods, etc. For example, if
we draft letters on a computer rather than in paper, it will save millions
of paper as well as thousands of trees that provide raw materials for
paper production. Similarly, when we select a location of the branch of
a bank with sufficient access to light and air, it will save huge
electricity and create a healthy environment.

59
 Clean and Hygienic Environment: A green banker will not throw any
waste, bottles or packing materials here and there. Each group of waste
should be kept in a separate place, which does not pollute the
environment and all the wastes must be disposed of separately. A green
banker will not spit or cough on the floor, walls or on the road
 On-line Banking: Additional conservation of energy and natural
resources, paying bills online, remote deposit, online fund transfers,
and online statements are just a few of the ways that online banking
can create savings from less paper, less energy, and less expenditure of
natural resources from banking activities. Customers can also save
money by avoiding many of those late payment fees or overdraft fees
that can sneak up if the customers use bank by-mail or branch banking
services.
 Green Banking in Rural Branches: Since India is an energy deficit
country the bank can install solar panels in all branches as an
alternative energy source. They can also use the vehicles which
consume less fuel which will save huge fuel 10 import of the country.
They can also use big vehicles to carry the employees of the banks
instead of personal vehicle to reduce fuel as well traffic jam in the
roads.
 Financing the Green Projects: Bankers must be aware of the
environmental issues and they must go for financing the projects that
do not pollute the environment. The industries that are financed by the
banks must have effluent treatment plant, recycling facilities and
smoke and gas arresting unit. The industries must not release any kind
of effluents, chemicals or smoke to the environment.
 Voluntary Actions: Banks should take initiative to make their clients
aware by organizing seminar and symposium. They can organize
awareness campaign in schools and colleges. They can participate in
the tree plantation and cleanliness programmes in city areas.
 Working on Specific Green Project: India has lot of problems of
proper waste management, drainage and sanitation, and affected by
river pollution, water pollution by pesticides, etc. Every bank can
undertake a specific green project for removal of existing polluting
60
 substances from the ecosystem. Environmental conservation and
protection of ecological balance should be maintained through
combined efforts of multi stakeholders. The main stakeholders are
businessmen, consumers and professionals, NGOs and government
organizations. Since, banking industry deals with public money, they
can not remain indifferent and must be more sensible to the
maintenance of ecological balance. 11
 Use Green Credit Cards: The benefit of using a green credit card is
that some card issuers will donate funds to an environment-friendly
non-profit organization. Imagine kicking back a percentage of every
rupee to spend on the customer’s credit card to a worthwhile cause.
Research the latest green credit card deals to find a card that will give
back to the organization.
 Use Green Checking Accounts: Using a green checking account helps
the environment by utilizing more online banking services including
online bill payment, debit cards, and online statements. Consumers
should be aware that banks offer green checking account because,
ultimately, it helps their profits and not for purely altruistic reasons.
They can profit customers as well because many reward checking
accounts will pay a high interest rate to bank customers who meet
certain monthly requirements. Use
 Green Loans for Home Improvements: Before a customer undertake
a major home improvement project; study if the project can be done in
an ecofriendly manner and if the customer might qualify for a green
loan from a bank. Green loans are perfect for energy-saving projects
around the house. Find a better loan rate and save energy costs all at
the same time.

Practices of green banking

Green banking practices have developed in various forms. Green

financial products and services include loans, deposits, and settlement
services in accordance with environmental requirements. Green

61
 banking includes green bank loans with financial concessions for
environment-friendly products and projects such as green lending, fuel-
efficient vehicles, green building projects, housing and house
furnishing loans for installing the solar energy system, etc. (Singh,
2015). Green banking also requires environmental standards for
lending (e.g., banks follow environmental standards for loans, which
will make business owners change their operations to environment-
friendly business (Meena, 2013). The typical green banking practices
are as follows:

(i) Low-interest loans: Using subsidy from the government, the central
bank, and green funds, commercial banks give low interest loans for
green investments in the early periods of green banking development
(Chaurasia, 2014).

(ii) (ii) Special loan: funded by international organizations to support the

development of a certain industry/business such as renewable energies,
energy efficiency, agricultural production, green building, and so forth,
this kind of loan is deemed as the pilot model of green banking (e.g.,
series of Rural Finance 1, 2, 3 funded by the World Bank in Vietnam)
(Tran & Tran, 2015).

(iii) (iii) Green credit standards: A special kind of credit provided to

enterprises by commercial banks is based on certain requirements of
environmental standards. These requirements could be associated with
environment standards issued by the Ministry of Environment and the
provincial environmental department (Zhang et al., 2011).

(iv) Investment funds: Used for financing SMEs’ green investments in

packages with consultant services in protecting environment and
sustainable development, these funds are contributed by individuals or
institutional investors. These successful experiences could be seen in
the Root Capital model in Africa and Latin America. Root Capital
supports small and growing businesses that adopt responsible
environmental practices such as training farmers in sustainable
production techniques, utilizing clean and appropriate technologies,

62
etc. By providing capital and financial training to small and growing
businesses that value environmental stewardship, Root Capital builds
sustainable livelihoods in Africa and Latin America (Root Capital,
2016).

(V) Electronic banking: Banks should apply the electronic banking to

promote environment- friendly practices and reduce the carbon
footprint from banking operations now that it offers them cost saving.
E-banking services include online enquiry, e-payments, e-transfer,
mobile banking, and so on (Tran & Tran, 2015; Singh, 2015).

(vi) Green buildings: Banks provide loans for customers who use, or
invest in, green buildings, which reduce the carbon footprint by, for
instance, installing solar energy systems or utilizing energy-saving
equipment. Bahl (2012) described carbon footprint reduction by green
buildings as the top priority in green banking strategies.

(vii) SMART: Specific, measurable, attainable, realistic, and timely

green objectives considered as the internal targets are to reduce the
carbon footprint in combination with timelines in banks’ operations
(Nath et al., 2015).

Green Banking Practices of Top Leading India Public

and Private Sector Banks

State Bank of India (Neetu Sharma, Richa Chaudhary & Dr. Harsh
Purohit, 2015)

 Introduction of Green Channel Counter (GCC) facility at their

branches in 2010 to promote

63
paperless banking and expand it to all the branches. (SBI 2014)

 Collaboration with Suzlon Energy Ltd. to employ wind power as an

alternative to thermal

power in some branches of Gujarat, Tamil Nadu and Maharashtra by

setting up of wind mills.

 It became member of Carbon Disclosure Project to undertake

environmentally sustainable

banking practices (WWF – INDIA 2014)

 Entered into agreement with Export Import Bank of to India (EXIM)

to provide long term

loans up to 14 years to a Spanish company Astonfield Renewable

Resources and Gurpo TSolar Global SA for building solar plants in
India.

 Employed large number of solar ATMs

 Interest charged at concessional rates on green projects to encourage

reduction of greenhouse

gas emissions.

Punjab National Bank (Neetu Sharma, Richa Chaudhary & Dr. Harsh
Purohit, 2015)

 the bank has well established active CSR Policy catering to the
needs of rural customers and

small and micro entrepreneurs. Another major initiative in the area of

CSR is ‘PNB Prerna’.

 The bank exercises green building practices like energy efficient

lights, immediate repair of

any water leakages, printing on both sides of paper, promoting rain

water harvesting and

64
extensively using renewable sources of energy for electricity
generation.

 It organizes Sapling and Tree Plantation programs during the year.

 It has set up a butterfly park in the compound of Guruvayur temple

containing 18 types of

medicinal plants under an agreement “Green Pledge” signed with

Ministry of New and

Renewable energy.

 Granting of loans to projects being approved by the Pollution

Control Board ensuring

compliance with the social and environmental safeguards including

rehabilitation and

resettlement of people affected by project.

 designing of a Sustainable Development policy on the guidelines

issued under Equator

Principles.

Bank of Baroda (Neetu Sharma, Richa Chaudhary & Dr. Harsh

Purohit, 2015)

 It gives sanction to those projects which are permitted by the

Pollution Control Board and also

They are not extending finance to environmental hazardous substances.

 the bank has inculcated the practice of paperless banking through

use of internet banking,

Mobile banking and increased number of ATMs.

65
 Alterations have been made to desktop virtualization, backup
consolidation and server

Virtualization to improve data center operational efficiency. This

includes energy efficient Electrical and HVAC design.

 Honored with “Global Excellence & Leadership Award” in the

category of 50 most talented CSR professionals of India by World CSR
Congress in Mumbai in 2014.

Canara Bank (Raghupati & Sujhatha, 2015)

 It has set up e – lounges for high – tech banking facilities like

internet banking, pass book

printing kiosk, ATM, online trading, mobile banking and telebanking.

 The bank has implemented E – HRM policies and procedures in the

system.

 It extends loans to projects which values the use of wind energy and
solar energy to earn

carbon credits.

 At the time of appraisal of projects the bank makes it mandatory for

the manufacturing units

emitting toxic effluents to install the water treatment plants and also
obtain approval of the

central or state Pollution Control Board.

Kotak Mahindra Bank (Raghupati & Sujhatha, 2015)

As a part of its “Think Green Initiatives” the bank has adopted

following measures:

 Partnered with Grow – trees.Com to plant one sapling for every e –

statement on behalf of its e

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– statement.

 It has set up ‘Social Environmental Management System Plan’

formed on the basis of an IFC

based sustainable framework and performance standards for evaluating

social and

environmental risk.

 According to the guidelines of Ministry of Corporate Affairs, the

bank issues e – copies of

Annual reports to its customers.

 The data centers have been consolidated into single facility to

improve efficiency in 2009.

 Installation of rain water harvesting tank in the premises.

ICICI Bank (Neetu Sharma, Richa Chaudhary & Dr. Harsh Purohit,
2015)

As a part of its “Go Green” initiatives following activities are

performed:

 Offering green products and services of Insta banking and

concessional auto loans to the

customers purchasing cars using alternative sources of energy.

 Green engagements in form of partnership with Green theme –

CNBC overdrive auto awards, Celebration of World Environment Day
on June 5 by organizing trees and sapling plantation program and
celebrating earth hour every year by switching off the lights in its
premises from 8:30 pm to 9:30 pm. They are also partners with Green
Governance Awards set up by BHNS.

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 Green Communications includes promoting paperless banking
through encouraging online fund transferring, filing of e-returns,
making of e- FDs, online bill payments, demat trading etc.

 Other initiatives includes organizing Webinars, use of CFL bulbs,

carpools and public transportation, developing eco-friendly air
conditioners etc.

HDFC Bank (Neetu Sharma, Richa Chaudhary & Dr. Harsh Purohit,
2015)

 It has taken steps in the area of waste management and energy

efficiencies by increasing awareness among the employees to prevent
wastage of resources and emission of greenhouse gases, encouraging
the customers to deal through e-transactions and tying up with vendors
for recycling of paper and plastic.

 Setting up of 20 solar ATMs and replacing the batteries in ATM

with Lithium – ion batteries.

 the bank is accepting the projects which are rated by Energy stars
and have a prior approval of Central pollution Board.

 Conservation of electricity by using CFL bulbs, switching off lights

in all branches after 11 pm and establishing green data centers.

 Formation of Green clubs within banks of all regions with

Environment Managers at every branch. Induslnd Bank (D Kandavel,
2013)

 it had started its Green Office project under a campaign titled under
“Hum aurHaryali.”

 it had installed first solar power ATM in Mumbai and replaced

diesel generators with solar panels. This would lead to savings of
Rs.20, 000 p.a. to the bank.

IDBI Bank (D Kandavel, 2013)

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 Designed a separate team on clean development mechanism
advisory services.

 implemented a refinance scheme for small, medium and micro

enterprises energy saving projects.

Axis Bank (Neetu Sharma, Richa Chaudhary & Dr. Harsh Purohit,
2015)

 The bank collected the dry waste generated from its head office and
34 branches in Mumbai

And recycled it to notepads, notebooks and envelopes. More than

1,00,000 kg of waste has been converted into 12,000 notebooks,
notepads and envelopes.

 The head office at Mumbai has been converted into platinum LEED
certified Green Building.

 Car pooling introduced as a measure to reduce carbon footprints.

 Communications with customers done in electronic form like use of

e- statements, mailing the annual reports, internet and mobile banking.

 Ten solar based ATMs installed in Coimbatore under Independent

ATM Deployment (IAD) Model.

Idfc Bank

The bank as a part of its “Go Green Initiatives” has undertaken

following steps:

 It sends annual reports to its shareholders through mail to save

paper.

 It has constituted Environment Risk Group (ERG) whose operations

are headed by a Chief Risk Officer

 It has a well-developed Environmental and Social Policy Statement

and publishes annual

69
report in accordance with guidelines issued under Equator principles.

 it aims at reducing its carbon footprint by computing ratios (t

Co2e/operating income and t Co2

e/Profit after Tax) to measure the incremental emissions for every

rupee of revenue and profits generated respectively.

Some other initiatives on part of banking sector include Yes bank’s

“Yes Community” initiatives

Which include measures on energy efficiency, workplace health and

safety and local disaster plans.

Moreover, the foreign banks of ABN AMRO and Royal Bank of

Scotland constructed a Sustainable Development Fund as a response to
socially active investor groups.

Green financial instrument In India Green Bonds:

Green bond is a debt instrument which has characteristics similar to

that of a standard coupon bond but the difference is only that the issuer
of this bond utilizes the proceeds from this bond in energy efficient
projects relating to renewable energy, emission reduction,
reforestation, etc. In India, Indian Renewable Energy Development
Agency (IRDA) issued a tax free Green Bond in February 2014 for
Rs.1,000 each. It issued bonds with 10 year, 15 year and 20 year terms
carrying interest rates at 8.16%, 8.55% and 8.55% p.a. respectively.
CARE and Brick Works gave it AAA rating. Yes Bank has issued a 10
year Green Infrastructure bond in February 2015 raising an amount of
Rs.1,000 crores. The amount raised by the bank would be diverted
towards the financing of the Green Infrastructure projects such as solar
power, biomass, wind power and small hydel projects. It has tied up
with KPMG India to provide Assurance services annually in
accordance with the green bond principles. Hindustan Power Project
entered the green bond market with an issue of bonds fully
underwritten by Yes Bank. In 2016 Yes Bank issued another green

70
bond as a private placement with International Finance Corporation
(IFC) as a sole investor for INR 3.15 billion. The bond has been rated
as AA+ by ICRA and CARE.EXIM Bank of India issued a five year
$500 million green bond in March 2015. It is the India’s first dollar
denominated green bond. The bank would utilize the proceeds in
funding the green projects in India, Bangladesh and Sri Lanka. NTPC
Ltd. had planned to raise $ 500 million by way of green bond issue.
The proceeds from this issue will be used for setting up 10 GW solar
power capacities. The state governments of Andhra Pradesh,
Telangana, Madhya Pradesh and Rajasthan have asked the company set
up large scale solar power projects for which it has issued tenders
worth 1.25 GW solar PV power capacity. Re New Power Ventures
issued green bonds for raising $68 million backed by Goldman Sachs.
Greenko, a clean energy player issued a $550 million high yield
corporate bond to re-finance its wind and hydro power projects
carrying a interest rate of 8% p.a. It was rated B by Fitch. CLP India
Ltd. issued Green bonds to raise Rs. 600 crier offering a coupon rate of
9.15 % p.a. in three series of equal amounts and its maturity would take
place every year in April 2018, 2019 and 2020. IDBI Bank Ltd. raised
US $350 million by issuing a five year Green Bond priced at
Treasuries plus 255 bp, which was oversubscribed by three times i.e..
US $1 billion.

Green Insurance: Green insurance schemes are those schemes which

provide risk cover at a low premium and enhanced coverage for green
products to minimize the impact of climate change, thereby fostering
good corporate behavior. In India at present HSBC collaborated with
Allianz to provide its customers with green reinvestment insurance. It
provides cover to buildings obtaining certification from international
environmental standards such as US Leadership in Energy and
Environmental Design (LEED) and Building Research Establishment
Environmental Assessment Methodology (BREEAM). This cover
provides an additional 5% over and above the normal insured loss

71
amount with a only minor increase in premium. This would encourage
the builders to create more energy efficient buildings.

Green Loan Schemes: Green loan schemes are the financing schemes
offered by commercial banks and financial institutions at concessional
interest rates directed towards providing support to investment in
energy efficient projects. State Bank of India (SBI) had launched a
Green Home Bank loan scheme at low interest rates to encourage the
customers to opt for Green housing i.e.. the buildings that are certified
by rating agencies such as Leadership in Energy & Environmental
Design (LEED) India, India Green Building Council (IGBC) and TERI
– GRIHA from TERI- BCSD India. ICICI Bank has launched a scheme
of Vehicle finance which aims at reducing the interest rate by 50% on
the loans taken by the consumers on purchase of cars employing
renewable sources of energy like the Civic Hybrid of Honda, Tata
Indica CNG, Reva electric cars, Mahindra Logan CNG versions,
Maruti's LPG version of Maruti 800, Omni and Versa and Hyundai's
Santro Eco. Under its Home finance schemes the bank attempts to
reduce the processing fees of customers purchasing homes in LEED
certified buildings. (Raghupati&Sujhatha, 2015) Union Bank of India
offers schemes extending loans to farmers for purchase of solar water
heaters, solar water pumps and installing of solar home lighting
system. Punjab National Bank offers medium term loan schemes to
farmers for construction of green houses, setting up of biogas plants
with sanitary latrines and has a scheme of PNB’s Saur UrjaYojna for
small farmers to finance the purchase of solar home lighting and water
heaters. India being a developing country has a bond market operating
in the nascent stage. Therefore, there are certain challenges which
confront India for issuance of green bonds in International markets
which are as follows:

 High currency hedging costs.

 Poor sovereign ratings (currently at BBB)

72
 Low tenure (currently concentrated between 3 to 10 years) There are
some recommended policy measures which the government can take to
overcome the challenges faced by green bonds:

 Development of an exchange risk liquidity facility through foreign

reserves to the participants of green bonds for specified period.

 Complying with the guidelines of Green Climate Fund (GCF) to

provide risk mitigation products such as partial credit guarantees, risk
guarantees or hedging product, etc.

 One of the policy measures to reduce hedging risks can be indexing

electricity tariff to inflation

Green banking initiatives adopted by various banks

As part of green practices, RBI has issued major guidelines for banks
to take proactive steps for increasing use of electronic payment
systems, elimination of post-dated cheques and also gradual phase out
of cheques in their day to day business transactions and activities. On
behalf of this, other banks such as NABARD, EXIM Bank, SIDBI etc.
would take up the e-governance initiatives in a proactive manner.
Through these initiatives it is expected that on one hand the quality,
effectiveness and efficiency of the service delivery will improve and on
the other hand banks will gradually move towards less paper based
transactions in days to come.

1. State Bank of India (SBI): In order to promote paperless green

banking for deposits, remittance and withdrawal SBI has started
“Green channel counter” on 1st July 2010. In this counters customer
need not fill up any pay in slips or draw cheques for withdrawal or
depositing of money from their accounts, saving paper and thereby
contributing to the concept of green banking. SBI thus became the first
bank in the country to venture into generation of green power by
installing windmills at various locations in the country. The bank has
also introduced a scheme known as green homes, under this scheme the

73
bank is offering concessions such as reduced margin, zero processing
fees and low interest rate for on home loans for environment friendly
residential projects rated by the Indian green building council (IGBC).
Bank in recent days has also launched a loan product called ‘Carbon
Credit Plus’ to finance the future clean development mechanism
(CDM) projects.

2. Punjab National Bank (PNB): According to corporate social

responsibility report 2010-2011 (PNB, 2011) they had initially taken
various steps to reducing emission and energy consumption. As energy
conservation initiative bank has begun conducting electricity audit of
offices. Bank is also emphasizing mainly on green buildings and
earnestly encouraging simple green practices such as opting for energy
efficient lights, CFL bulbs, printing on both sides of paper purchasing
composite fax machines which can necessarily perform multiple
functions, immediate repair of water leakage, use of master censor
master switches for light which reduces consumption of extra unit of
energy

3. Bank of India (BOI): Provision of providing mobile banking,

phone banking, internet banking and electronic cards was added as
alternate delivery channel to reduce the use of paper in banking
procedure. Bank has issued e-transaction advices to corporate
customers and reduction in paper usage as well as encouraging
electronic statements among retail customers. Various green initiatives
such as distribution of tree saplings and also creating awareness among
society have been undertaken by the bank.

4. Initiatives taken by ICICI Bank: The bank offers green products

and services like Insta banking which is a service which gives
convenience and easiness to the customers to do banking anywhere and
anytime through mobile banking, internet banking, IVR banking etc.
This certainly reduces the carbon footprint of the customers as they do
not require the physical statement or travel to bank branches. The bank
also conducted paperless initiatives like e-greetings and e- statements

74
which has helped to save 30,000 trees from being felled and sixteen
crore litres of water through green initiatives. Besides this ICICI Bank
attempts to support other organizations in their endeavors to ‘Go green’
by managing and funding green technology projects.

5. Canada Bank: Canada bank in 2013 had taken many green

initiatives as a part of green banking initiative; bank had adopted
environmental friendly measures such as internet banking, tale
banking, mobile banking, solar powered biometric operations etc.
Canara bank has also set up e-lounges for high tech banking facilities
like passbook printing kiosk, internet banking, ATM, online trading
and cash or cheque acceptor. The bank also has implemented e-
governance for HR function and several other administration areas to
reduce the paperwork in bank transactions. Due preference and weight
age to projects are given in terms of lending policy which can earn
carbon credits like windmills, solar energy products etc. Besides these
the bank is also not extending any finance to the units which are
producing ozone depletion substances such as carbon tetrachloride,
chlorofluoro carbon, aerosol products, solvents etc.

6. Syndicate Bank: Bank has taken steps towards effective

implementation of “Green initiative in corporate governance” by
allowing paperless compliances through electronic mode. Also
transactions through alternative channel to reduce the usage of paper
based payment instruments are actively encouraged. Through e-lounge
facilities, ATM’s and internet banking, bank is encouraging banking
transactions through e-mode thus paving way for a greater role towards
green initiatives.

7. Central Bank of India: It launched “Go Green” campaign for its

esteemed customers with a purpose to promote green banking which is
queue less bankingand also promotes use of recyclable products for
banks stationery using TYVEK materials. Here customers are
motivated to opt for e-statements, use internet banking and also use e-
voucher machine for transactions.

75
8. HDFC Bank Ltd: It has launched a system of sending the personal
identification number (PIN) for debit card holders through SMS instead
of usual dispatch by post. Bank has also incorporated environment
friendly features into their infrastructure which involves energy
conservation, air quality management etc. Phase out policy- replacing
inefficient lighting options with LED lights in large offices, use of
central pollution control board (CPCB) compliant diesel gensets server
and also desktop virtualization reducing much of the power
consumption. Establishment of multiple alternate service points to
enable easytransactions in paperless environment. Employee awareness
campaigns to promote an environment friendly practice 9.

Yes Bank: It is a first Indian signatory to carbon disclosure project

and also has documented its carbon footprint. It is the first Indian bank
originating from private sector which has become signatory to UNEP
statements by financial institutions on environmental norms and
sustainable development. Yes bank has also advocated a proactive
response to climate change from its peers in industries, banking
community and society as well.

10. IDBI Bank: This bank took a leap step towards green initiative in
corporate governance through which bank sends all the documents
relating to general meeting notices, annual reports, other notices etc. to
their shareholders in electronic form. IDBI bank also has an exclusive
team working on clean development mechanism (CDM) and other
advisory services. It has also implemented a refinance scheme for most
of the energy saving projects especially for micro, small and medium
scale enterprises.

RBI guidelines regarding Green Banking:

The Institute of Development and Research and in Banking

Technology (IDRBT) established by Reserve Bank of India (RBI) has
proposed the introduction of standard rating for green efficient banks

76
and banking practices among Indian Banks. Under this rating system,
both the infrastructure and operations of the banks are being
considered. IDRBT has coined the term of Green Rating Standard as
“Green Coin Rating”. Banks‟ primary business must not be money
making only, but it should also keep in mind social and environmental
issues relating to its operations. Green Coin Rating will be in line as
energy star rating given for appliances. Banks will be judged based on
the rate of carbon emission out of their operations, the amount of reuse,
refurbish and recycling concept being used in their building furnishings
and in the systems used by them such as computers, servers, networks,
printers, etc. They will also be evaluated on the number of green
projects being financed by them and the amount of rewards and
recognition they are paying for turning businesses green.

Carbon
emission Green
building
Green
rewords

Green
coin
Reuse/ rating Paper work

recycle/
refurbish

Green
investment

77
In October, 2011 Reserve Bank of India issued a letter to all Non-
Banking Financial Companies requesting proactive steps be taken for
better utilization of their resources, better delivery of service by
increasing the use of electronic payment systems, elimination of post-
dated cheques and gradual phase-out cheques in their day to day
transactions (Subramanian, 2011). RBI has also promulgated
guidelines for the greening of banking through products, processes,
services, strategies and through greening infrastructure for promoting
overall sustainable development (Chakrabarty, 2013). The remainder of
the paper is structured in the following manner: Section 2 discusses the
existing literature; Section 3 describes the data, data sources and
methods used in this study. We present the empirical results along with
discussion in section 4 and concludes the paper in section 5.

The demand for green finance

Any figures on the existing supply of green finance need to be put into
perspective vis-a-vis the demands to enable better decision making. A
proxy for a ‘sufficient amount’ of green finance needs to be
established, ideally per financial instrument, as linking green finance
needs with the best-suited disbursement channel is important for its
success.45 This ‘demand side’ can be backed by information from
countries’ national regulations and development plans, national
research institutes, and business associations or companies’ strategy
announcements. Even though general political targets for
environmental action including climate change are set in many
countries, and businesses are following with their own pledges, only a
few countries and companies have announced any clear targets on how
to involve the private sector in achieving the greening of the economy.
Approaches on modeling finance needs in the real economy for the
implementation of a zero-net carbon and green economy still remain
rather abstract, especially when it comes to a breakdown for specific

78
financial instruments. The Two Degree Investing Initiative’s (2DII)
suggestion of a ‘Climate Capital Monitor’ provides an interesting
outline of how to analyze policy targets for that purpose through the
linkage of physical asset level data with information on ownership of
securities

Green Bonds - Financing Sustainable Development

Green Bonds or Climate Bonds have been gaining wide popularity

globally over the last few years. These financial instruments are like
any other bonds, except that the funds raised through these are
earmarked for projects which are linked to protection of the
79
environment and sustainable development. Green bonds can be issued
by a government, bank or corporate entity. The issuing entity
guarantees to repay the bond over a certain period of time along with
either a fixed or variable rate of return.

Over the past decade, with an increasing focus on clean environment

practices, renewable energy and sustainable global development, vast
technological growth has taken place towards creating environment
friendly consumption. Be it energy or consumables, the world is slowly
shifting to address the need of protecting the environment and reducing
the overall carbon footprint.

European countries and the World Bank were the first to initiate fund
raising through Green Bonds. Since about 2007, these securities were
utilized by development banks and multilateral agencies in order to
raise capital to finance projects aimed at sustainable development. In
the beginning years (2007-2012) the concept struggled to make a mark,
however with the entrance of corporate players in 2013 the concept
gained popularity and the market grew for such Green Bonds. The
Figure 1 below shows the volume of issuance of Green Bonds across
the globe since its inception in 2007.

80
During the year 2016, the total volumes reached USD 81 billion which
is 100 times the volume of issuance since 2007.  With several
developing countries issuing such bonds, the market for the instrument
is poised for massive growth.

Why Green Bonds?

As per international studies, over the next 15 years, an estimated USD

6-7 trillion in annual investment will be needed globally to meet the
demand for green investment in sectors such as environmental
remediation, energy efficiency, clean energy, clean transportation and
green buildings in order to facilitate the global transition to an
environmentally sustainable and low-carbon society.

India is also doing its part to create a sustainable economy and be part
of the movement to reduce carbon footprint. As of of the signatories of
The Paris Climate Accord India has pledged to improve environmental
standards and improve investments in environmentally sustainable
technologies. The Indian government has set an ambitious target to

81
achieve 175 GW of energy through renewable sources by 2022. Such
investments alone will need about USD 200 Billion of financing. A
dedicated medium of funding is needed to bridge the capital gap
required to fund such projects.

Green Bonds in India

Green Bonds were issued for the first time in India by Yes Bank in
February 2015; the size of the issue was Rs. 1000 core with a tenure of
10 years and the proceeds of the issues were earmarked for funding
renewable energy projects such as solar, wind or biomass. In quick
succession, there were several other issuances of Green Bonds in the
country by Export Import Bank of India, CLP Wind Farms, Renew
Power Ventures and IDBI Bank in the same year itself.

The increasing popularity of Green Bonds in India inspired the capital

market regulator, Securities and Exchange Board of India to create a

82
more enabling environment for Green Bonds in the country.
Accordingly, in 2016 it came out with a set of regulations to govern
these instruments.

Global Green Bond Issuers

Green Bonds in India are gaining acceptance among issuers and

invesors which can be seen from the fact that in the very first year, the
Indian market reported an overall volume of USD 1.1 billion and in the
very next year, 2016, with a volume of USD 2.7 billion, the country
was ranked 7th in terms of issuance of Green Bonds. The following
figure shows the position of India among the Top 10 issuers of Green
Bonds in 2016.

A list of issuances of Green Bonds in India has been provided below.

Green (finance) bond in India

83
India has recently started dabbling in green bonds, a financial
instrument to generate funds for climate-friendly investments.
Launched for the first time by the European Investment Bank in 2007,
green bonds were a rage globally till 2014. In fact, that year bonds
worth $36 billion were sold, which was three times the figure for 2013.
However, in 2015 the size of the market has shrunk.

According to Climate Bonds Initiative, an international non-profit

focused on mobilizing the bond market towards climate change
solutions; there has been a total issuance of only $29.87 billion so far
this year. This assumes significance in the context of the Paris climate
meet to be held in December.

India plans an unprecedented scaling up of its renewable energy

generation capacity to 175 GW by 2022 from around 38 GW now.

84
According to an estimate by the Union Ministry of New and
Renewable Energy, this would require a capital investment of $120
billion and equity of $40 billion. The Herculean task of financing these
green projects also offers an opportunity for introducing new
mechanisms such as

Indian market abuzz

September saw ample activity in the green bond market (see

‘Confidence call’). CLP Wind Farms (India), the largest wind power
developer in the country, raised R600 crore through its first green bond
issue. This was the first such bond issued by a non-bank corporate in
India. ReNew Power Ventures was another company to issue its first
project-specific, credit-enhanced green bond in the country in
September. Credit enhancement means guarantee in the form of
financial support to cover losses in an adverse situation. It enhances the
overall credit rating of a green bond.

85
Banks started issuing green bonds even before corporate India did. In
February this year, the country witnessed the first green infrastructure
bond issuance by Yes Bank, followed by the Export-Import Bank of
India, which launched the first dollar-denominated bond offering out of
India. The issue was oversubscribed 3.2 times, reflecting the huge
demand for the instrument.

World Bank’s private investment arm, International Finance

Corporation (IFC), also raised RS 3.15 billion in August through a
green Masala bond for private sector investments that address climate
change in India. A Masala bond is a rupee-denominated instrument
issued in offshore capital markets. The bonds are called Masala
referring to the Indian subcontinent which is known for its spicy
cuisine. The bond market is famous for such colorful names. For

86
instance, green bonds issued in Lira for Turkish markets are called
“Baklava” with reference to the country’s famous pastry. IFC says it
would invest all the proceeds in a green bond issued by Yes Bank
which, in turn, will invest in energy efficiency projects, mainly in the
solar and wind sectors.

Although the market for green bonds is still nascent in India, investor
appetite has shown that it is here to stay. An industry expert says the
market is likely to grow to Rs 10,000 crore in the next three years,
from over Rs 7,600 crore in 2015.

All about Green Bonds In India

A green bond is like any other bond where a debt instrument is issued
by an entity for raising funds from investors. However what
differentiates a Green bond from other bonds is that the proceeds of a
Green Bond offering are 'ear-marked' for use towards financing ‘green’
projects.

Need for Green Bonds

Infrastructure financing in India has traditionally been supported by the

institutions such as banks, NBFCs and Financial Institutions. However,
given the huge investment requirements in infrastructure space, it is
widely accepted that current project financing sources may not be
sufficient for capacity addition. Thus, there is a need to introduce new
means of financing and innovative financial instruments that can
leverage a wider investor base such as pension funds, sovereign wealth
funds, insurance companies, etc. that can invest in the infrastructure

87
sector. Corporate bond markets have long been considered towards
providing this much required alternate source of financing.

India’s Intended Nationally Determined Contribution (INDC)

document1 puts forth the stated targets for India’s contribution towards
climate improvement and following a low carbon path to progress. The
document also impresses upon the need of financing needs for
achieving the stated goals, where a preliminary estimate suggests that
at least USD 2.5 trillion (at 2014-15 prices) will be required for
meeting India’s climate change actions between now and 2030. In this
regard the document talks about the introduction of Tax Free
Infrastructure Bonds of INR 50 billion (USD 794 million) for funding
of renewable energy projects during the year 2015-16.

Further, India has embarked upon an ambitious target of building 175

gigawatt of renewable energy capacity by 2022 and this requires a
massive estimated funding of USD 200 billion. Thus, the financing
needs of renewable energy space require new channels to be explored
which can provide not only the requisite financing, but may also help
in reducing the cost of the capital. Green bonds as a part of corporate
bonds space may be one of the answer to this problem.

Benefits of issuing Green Bonds

The key benefits of issuing green bonds are as under:

i. Positive public Relations

88
Green bonds can help in enhancing an issuer’s reputation, as this is an
effective way for an issuer to demonstrate its green credentials. It
displays the issuers commitment towards the development and
sustainability of the environment. Further, this may also generate some
positive publicity for the issuer.

ii. Investor Diversification

There is specific global pool of capital, which are earmarked towards

investment in Green Ventures. This source of capital focuses primarily
on environmental, social and governance (ESG) related aspects of the
projects in which they intend to invest. Thus, green bonds provide an
issuer the access to such investors which they otherwise may not be
able to tap with a regular bond.

iii. Potential for pricing advantage

The green bond issuance attracts wider investor base and this may in
turn benefit the issuers in terms of better pricing of their bonds vis-a-
vis a regular bond. Currently there is very limited evidence available in
this regard, however as demand of green bonds increases it is likely to
drive increasingly favorable terms and a better price for the issuer.
Further, with increasing focus of the global investor community
towards green investments, it is expected that new set of investors will
enter into this space leading to lowering the cost of funding for green
projects.

4. International Experience

89
Issuance of green bonds started in year 2007 and in the initial years
Green Bonds were a niche product, pioneered by a handful of
development banks. The period between 2007-2012 was featured with
the issuance of green bonds by the supranational organizations such as
the European Investment Bank and the World Bank, along with few
governments etc.

However, with growing market appetite for such bonds there is

increasing diversification of issuers and investors participating in
Green Bonds. Year 2013 saw the participation from corporate sector,
which substantially increased in year 2014. This has lead to overall
growth in the fresh issuance of green bonds, where the market has
almost tripled in size between 2013 and 2014, with around US$37
billion issued in 2014.

5. Indian Experience

India has lately seen issue of Green Bonds by three entities, brief
details of which are as under

90
i. Yes Bank

Yes Bank came out with first green bond issuance in India in February
2015, which was an Rs 1000 crore 10-year issue. The issue was
oversubscribed almost twice and the issue proceeds will be utilised
towards funding renewable energy projects such as solar, wind and
biomass projects.

Further Yes Bank came out with another issue of Green Bonds in
August 2015, which was an Rs 315 core 10-year issue. The entire issue
was subscribed by the International Finance Corporation.

ii. CLP India

CLP India, in came out with an issue of green bonds, the first from an
Indian corporate issuer. CLP India raised Rs 600 crore. The bonds have
been offered at a coupon of 9.15 per cent per annum, in three series of
equal amounts and will mature every April in 2018, 2019 and 2020.

iii. Exim Bank of India

Exim Bank came out with a dollar denominated Green Bond issue in
March 2015. The offer was of a five-year $500 million green bond.
The issue was subscribed nearly 3.2 times and the proceeds from the
issue would be utilized towards funding eligible green projects in
countries including Bangladesh and Sri Lanka.

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Graphical reprentation on green bond issuance in India

The Indian economy is forecast to grow at seven to eight percent in

2018-19, the fastest rate of growth amongst the G20 countries. India is
still amongst the lowest quartile of nations in terms of per-capita
income. People’s quality of life is held back by, amongst others, the

92
country’s inadequate infrastructure. India’s infrastructure challenge is
different to that of most other G20 countries. Instead of an
infrastructure transition, India’s journey is one of infrastructure
creation. It has the option to skip the growth trajectory adopted by
many other countries and move straight to an economy fit for the 21st
century. The old model can be avoided—that of growth replacing
cheap labour with fossil fuels, a predominantly primary economy with
low value manufacture, and services and rural agrarian development
with an uncontrolled urban sprawl. India can move directly to the 21st-
century paradigm of renewable energy sources, circular-economy
materials flows, and high-density planned cities with mass-transport
systems.

India’s Nationally Determined Contributions (NDCs)[i] includes

pledges to reduce the emissions intensity of GDP by 33 percent–35
percent by 2030 below 2005 levels and to increase the share of non-
fossil-based energy resources to 40 percent of installed electric power
capacity by 2030, with the help of transfer of technology and low-cost
international finance. These are ambitious promises and are recognised
by analysts as being broadly consistent with a 2°C world.[ii]

To achieve these targets, India is setting out on a huge programmer of

investing in solar PV and wind with targets to have 175 GW of
installed Renewable Energy (RE) capacity by 2022; this represents a
50-percent increase in India’s current electricity generation capacity of
345 GW.[iii] India is also seeking to electrify its mass transportation
system through completing the electrification of its broad gauge rail
(16,500 km) by 2022,[iv] electrifying its vehicle stock between 2015
and 2017. The sale of Electric Vehicles (EVs) and hybrids saw an
impressive seven-fold increase, rising from 10,321 vehicles in 2015 to
72,482 in 2017. E-rickshaws have grown to an estimated 1.5m. India
has avoided setting targets for electrifying its vehicle fleet; many other

93
countries have done so and it is likely that global car manufacturers
will shift their R&D and manufacturing plants away from petrol and
diesel drive trains.

According to official data, 1,417 of India’s 18,452 villages, or 7.3

percent of the total, have 100 percent household connectivity, but about
31 million homes are still without light in the evenings. Agriculture’s
contribution to India’s GDP is only 17 percent, yet it provides the
livelihood of more than 40 percent of India’s 1.3-billion populations.
The ever-increasing demand for food has put productivity pressure on
agriculture, leading to increased mechanization and increasing its
dependence on an increased supply of energy. Agriculture and other
land-use projects could greatly benefit from investment in newer
capital-intensive technologies like drip-irrigation, farm-level anaerobic
digestion of manures and crop waste, and other improved water
management technologies.

To date, climate policy action including financing has remained

heavily tilted towards mitigation. Given the certainty of extreme
weather events rising in frequency and intensity, a high degree of
vulnerability and low adaptive capacity of communities, it becomes
imperative to climate-proof the economy and strengthen people’s
capacities to withstand climate shocks. Out of 170 countries surveyed
India has the 2nd highest vulnerability to climate change.[v] According
to the Economic Survey’s mid-year report (2017), the direct costs of
extreme events spurred by climate change in India are in the tune of
US$ 9-10 billion per annum.[vi] Building in adaptation and resilience
cover for vulnerable areas/sectors thus becomes critical to creating
financing flows for identified asse

94
 Conclusion and suggestions

SUGGESTIONS

Following are some of the suggestions that can be adopted by the

banks for proper implementation of green banking in India:

a) Make customers more and more aware about green banking through
their website.

b) Promoting different forms of electronic banking.

c) Creating customer’s awareness through the media.

d) Carbon footprint reduction by saving energy and paper.

e) Providing environment friendly rewards to customers.

f) By financing more and more environment-friendly projects.

g) Social Responsibility services done by banks.

h) Clear policies are required to altering the present management

systems to incorporate sustainability issues.

i) Training and development of relevant skills within bank employees

so that they can use.

Conclusion

95
Green Banking has been boosting to improve the environment and
promoting economic growth. Until a few years ago, most traditional
banks did not practice green banking or actively seek investment
opportunities in environmentally-friendly sectors or businesses. Indian
banks are far behind their counterparts from developed countries. If
Indian banks desire to enter global markets, it is important that they
recognize their environmental and social responsibilities. Only recently
have these strategies become more prevalent, not only among smaller
alternative and cooperative banks, but also among diversified financial
service providers, asset management firms and insurance companies.
Further, those industries which have already become green and those,
which are making serious attempts to grow green, should be accorded
priority to lending by the banks. This concept of "Green Banking" will
be mutually beneficial to the banks, industries and the economy. Not
only "Green Banking" will ensure the greening of the industries but it
will also facilitate in improving the asset quality of the banks in future.
There are lot of opportunities and challenges for Indian banks in
adopting ‘Green Banking’ as profitable business. Green banking if
implemented sincerely will act as an effective ex ante deterrent for the
polluting industries that give a pass by to the other institutional
regulatory mechanisms. Therefore, for sustainable banking, Indian
banks should adopt green banking as a business model without any
further delay.

96
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[2]. Alice Mani, “Green Banking through Green

Lending”,www.ibmtedu.org/GVCG/Papers/IC- 140.pdf, 2011.

[3]. Alpesh Shah et. al. “Indian Banking 2020 – Making the Decade’s

Promise come true”, Report of BCG, FICCI and Indian Banks’

Association, Sept. 2010.

[4]. Bank of Baroda. (2013). 2012-13 Annual Report. Vadodara: Bank

of

Baroda.

[5]. BankTrack. (2014, 03 06). Home: Bank Track. Retrieved from

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Track: http://www.banktrack.org/show/pages/about_banktrack.

[6]. Bihari, S. C. (2011). Green banking -towards socially responsible

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[7]. Biswas, N. (2011). Sustainable Green Banking Approach: The

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[8]. BSE-INDIA. (2014, 03 06). Downloads:. Retrieved from BSE:

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[9].
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EX%20Factsheet.pdf

[10]. Business Standard. (2014, 03 06). Article: Business Standard

(April

19, 2010). Retrieved from Business

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[12]. Caruntu, G.A. (2008) „Methodology to determine the enterprise‟s

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[15]. Dash R.N.; “Sustainable ‘Green’ Banking: The Story of Triodos

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Innovative

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Initiative for Sustainable Development.

[17]. Equator Principles Association. (2014, 03 04). Members and

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[18]. Financial Times. (2014, 03 4). About Us: ft.com. Retrieved from

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[20]. Kotak Mahindra Bank. (2013). Annual Report 2012-13. Mumbai:

Kotak Mahindra Bank.

[21]. Punjab National Bank. (2011). 2010-11 Corporate Social

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[22]. Sahoo Pravakar and Bibhu Prasad Nayak; “Green Banking in

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[23]. State Bank of India. (2014, 03 07). Web files: State Bank of
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banking’, Financial Chronicle, August 27, 2010.

99
Annexure

Q1: Do you provide green finance…?

Q2: RBI provides any subsidy if banks are follow the green
banking…?

Q3: Do you charge low rate of interest on green finance compared to

other normal loan..?

Q4: Do you encourage to organization to obtain green finance, if yes

why?

Q5 green bank help to reduce carbon emission? If yes how

Q6 Do you provides special preference to those who obtain green

finance, if yes why?

Q7: which type of financial instrument your bank can use for green
finance?

Q8: which type of company can obtain green finance from your bank..?

Q9: RBI providing you any guideline for undertaking green banking
finance..?

Q10: Do you take any step to reduced carbon emission..?

Q11: Green banking finance while popular in borrowers…?

Q12: Do you trust that green banking finance encouraging Indian

economy..?

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Q13: as per your opinion any banking modification is required in green
banking system and strategy …?

Q14: green banking is beneficial for banks if yes…?

Q15: Do you issue green bond to obtain capital from market..?

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