SBI Report Calls For Priority Sector Lending Reforms To Boost Renewable Energy And Green Finance

A recent research report by the State Bank of India (SBI) has recommended a major revision of India’s Priority Sector Lending (PSL) guidelines to better align the country’s banking system with changing economic needs and long-term development goals. According to the report, the existing PSL framework, introduced in 1972 to improve access to credit for underserved sectors, has played an important role over the decades. However, it now requires significant changes to support India’s vision of becoming a developed nation by 2047 under the “Viksit Bharat 2047” initiative.

The report states that while banks have largely been successful in achieving the mandatory target of directing 40 percent of their lending to priority sectors, the current framework does not adequately address emerging sectors such as renewable energy, climate finance, and sustainable infrastructure. SBI Research believes that expanding the scope of priority sector lending will help the banking industry play a more active role in supporting India’s clean energy transition and climate commitments.

One of the key recommendations in the report is to increase the lending limit for renewable energy projects under the PSL framework. At present, renewable energy projects are eligible for priority sector lending up to Rs 35 crore. SBI Research has proposed raising this limit to Rs 100 crore. The report says this increase would enable banks to provide easier access to finance for larger renewable energy projects, including solar, wind, and other clean energy developments. Greater access to affordable credit is expected to accelerate investment in the sector and support India’s renewable energy expansion.

The report also recommends creating a separate category within the priority sector lending framework specifically for climate sustainability finance. According to SBI Research, such a category would encourage banks to finance projects that contribute to climate resilience, environmental protection, and sustainable development. In addition, the report suggests that investments made by banks in green bonds and Environmental, Social, and Governance (ESG) bonds should be considered eligible for meeting their PSL obligations. This step would provide further incentives for financial institutions to invest in environmentally responsible projects.

Another important recommendation focuses on supporting the electric vehicle (EV) ecosystem. The report identifies EV-related financing as an important element of India’s green transition and suggests that greater policy support should be provided to encourage lending in this area.

Apart from clean energy and climate finance, SBI Research has also proposed revising lending limits for sectors such as education, housing, and social infrastructure. It further recommends strengthening policy support for large infrastructure projects that contribute to economic development.

According to the report, updating the PSL guidelines will help ensure that India’s banking system remains relevant in a rapidly changing economic and environmental landscape. By encouraging greater investment in renewable energy, climate-focused projects, green financial instruments, and sustainable infrastructure, the revised framework can support both economic growth and environmental objectives. SBI Research believes that these reforms will strengthen the role of banks in financing sustainable development and help align the country’s financial system with its long-term climate and development priorities.