IIM Lucknow faculty research shows that the expansion of non-carbon intensive lending can improve the core of loan portfolios of Indian banks. The study provides compelling evidence that the banks which have greater proportion of green loans, experience long term improvements in financial stability which adds to the strategic importance of sustainable lending in the Indian banking system.
Despite global initiatives to create uniform frameworks for green lending, there are significant gaps in providing incentives, particularly in developing economies such as India. Most Indian banks are heavily dependent on lending to carbon-intensive industries as there is no clear taxonomy to identify and promote green assets. IIM Lucknow study addresses this gap by designing a framework to identify noncarbon-intensive sectors and assessing their impact on the quality of the bank’s loan portfolio.
Additionally, for the first time, the study has ranked Indian banks based on the sustainability of their credit portfolios, with a specific focus on non-carbon-intensive loans. This evaluation provides valuable insights for shaping future credit allocation strategies, helping banks balance financial stability with sustainable growth. Key findings include that green lending improves loan portfolio quality and the need for standardised green taxonomy and regulatory support.