Green Loans & Finance: Are Banks Genuinely FuelinSustainable g the Green Transition Through Lending?

Are banks helping India go green or just painting their image with eco-colours?
 

This question is more relevant now than ever. With the rise in climate talks and Net Zero commitments, financial institutions are pitching green loans and sustainability-linked products as their way of contributing. 

But are they helping our country build a cleaner future, or is it just another branding exercise?

Let’s break this down using hard facts, actual numbers, and an honest take on how sustainable finance is shaping up. This blog isn’t just another overview.

Money is Turning Green – But What Does That Mean?

Green loans and sustainable finance are not new terms anymore. But for many Indians, they still feel vague. Are these loans only for solar panels? Do banks give lower interest rates if your business is eco-friendly? More importantly, are these loans available for small businesses or only for big corporations?

In 2024, the global sustainable loan market touched ₹81,63,900 crore (€907 billion). That’s a massive number. 

India’s share is much smaller, but it is growing fast.

We need to go beyond the buzzwords. Here’s how green lending works.

How Green Loans Work: What You’re Not Told Clearly?

Green loans are given explicitly for environmental purposes—think solar power, electric vehicles, water-saving systems, and green buildings. But banks don’t always explain the process correctly.

Here's how they typically work:

Banks evaluate the environmental impact before approving. Many use third-party auditors to validate project goals.

Real Example:

A company in Gujarat borrowed ₹1,00,00,000 to install a 250 KW solar plant on its factory rooftop. The EMIs were lower due to green loan incentives. Monthly savings on power bills: ₹1,20,000. The loan was repaid in 6.5 years.

This sounds great, but not every borrower qualifies easily. The paperwork, audits, and environmental reports can be tough for small enterprises.

Yet, despite these barriers, platforms like Solfin in India have managed to disburse ₹100 crore in solar loans in less than a year. This proves the demand is there. People want to go green if the finance is friendly.

Read More – The Rise of Green Banking
 

Sustainability-Linked Loans: Real Progress or Just Lipstick?

Sustainability-linked loans (SLLs) are loans whose interest rate depends on your performance. You get cheaper rates if you meet green goals, like cutting emissions or using renewable energy.

Sounds progressive. In 2024, 72% of all sustainable loan volume came from roughly ₹58,78,800 crore loans.

But here’s the catch. Are the goals significant? Or are they too easy to meet?

Company A got a 1.2% lower interest rate. Company B paid the full rate. But guess what—Company B still markets itself as "green." This is where greenwashing starts.

A major scandal recently exposed that many "green funds" held ₹2,79,760 crore ($33.5 billion) in fossil fuel firms like Shell and BP. That’s not sustainability. That’s PR.

Is Indian Banking Supporting Real Sustainability?

Let’s examine Indian banks. On the surface, they appear to be joining the green bandwagon. SBI, HDFC, and Axis offer some form of green loan or bond.

A large bank financed ₹4,50,00,000 worth of agro loans to a client with links to deforestation in South America’s Gran Chaco. The loan wasn’t labelled a green loan, but the same bank runs ads showing support for tree plantations.

So, who’s holding them accountable?

Most Indian banks don’t disclose ESG-linked lending separately. That means it's hard to know how much money goes to clean energy vs. polluting sectors.

Also Read - The Impact of Renewable Energy Investments
 

Banks must begin publishing sector-wise disbursement of their green funds. They must also involve civil society, third-party reviewers, and stricter lending norms.

Techniques Banks Can Use to Make Green Finance Real

Many banks still treat green finance like a checkbox. But there are tried-and-tested methods that can make these loans work better:

1. Impact Assessment Models: Use lifecycle analysis to predict real environmental benefits.
2. Tiered Incentives: The cleaner your project, the better your interest rate.
3. Penalty Mechanisms: Miss your ESG targets? Pay extra interest.
4. Green Rating for Borrowers: Create a public scorecard of borrowers' environmental impact.

Conclusion

Green finance can power India’s clean future. But the banking system needs to be cleaner too. Real transparency, strict environmental checks, and inclusive access are the only way forward. It’s not enough to just paint green on ads. India needs banks that walk the talk.

Sustainable finance isn’t just a concept. It’s a responsibility. And it starts with honest lending.

FAQs

1. What is the eligibility for a green loan in India?
Most banks require your project to be eco-friendly—like solar, EV, rainwater harvesting, or energy-saving machinery. You’ll also need strong documentation and in many cases, an environmental clearance.

2. Is the interest rate lower for green loans?
Yes, sometimes. Many banks offer 0.5% to 1.5% lower rates compared to regular loans. But this depends on your credit profile and the impact of your project.

3. Can individuals apply for green loans, or are they only for businesses?
Yes, individuals can apply. You can take green loans for home solar installations, green buildings, or buying electric vehicles. Documents vary bank-to-bank.

4. How is a sustainability-linked loan different from a green loan?
Green loans must be used for green projects only. SLLs can be used for anything, but your loan terms depend on your ESG performance.

5. Do small businesses get access to sustainable finance?
Access is still limited. Most small businesses struggle with documentation. Fintechs and NBFCs are improving the situation, but banks must simplify their loan process.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?