Insufficient supervision keeps Indian banks tied to coal usage

Banks in India are distributing vast sums to the coal sector, prompting Anusha Das of Climate Risk Horizons to call for action from the Reserve Bank of India.

, and Administrator

2025 September 13 . 5:08 AM

2 min read

Inadequate surveillance leaves Indian banks burdened by coal industry ties

Insufficient supervision keeps Indian banks tied to coal usage

The Reserve Bank of India (RBI) has taken significant steps to align its supervisory assessments with the global shift towards a low-carbon economy. As of July 2025, the central bank has introduced stricter lending guidelines for coal sector financing and mandated enhanced climate risk disclosures from banks.

One of the key initiatives is the incorporation of transition risk analysis into RBI's supervisory assessments. This includes climate stress testing and scenario analysis to evaluate the potential impact of climate-related risks on banks' balance sheets.

The RBI is also encouraging financial institutions to develop inclusive transition strategies. These strategies should support worker retraining, community resilience, and regional development in coal-dependent areas, ensuring a smooth transition towards a cleaner and more sustainable economy.

To promote sustainable financing, the RBI is exploring incentives for banks that adopt coal exclusion policies or direct finance towards green infrastructure. Additionally, the central bank can require banks to disclose their exposure to high-carbon sectors, including coal, with more specific classification than the current broad sectors like "power" or "energy".

The RBI is also considering setting portfolio-level exposure limits for coal-related lending, similar to its approach for other risk-prone sectors. This move aims to direct capital away from coal and towards clean energy and transition finance.

Moreover, the draft framework for disclosing climate-related financial risks needs to be finalised and made mandatory. This will ensure transparency and help stakeholders make informed decisions about the financial institutions they invest in.

The RBI recognises that coal dependence is not just a climate liability, but also an economic one. By leading the energy sector out of the past and into a resilient, renewable future, the RBI aims to maintain public confidence and protect the financial system from long-term shocks.

This page was last updated on July 31, 2025. The RBI continues to work towards creating regulatory incentives and disincentives to support India's transition towards a sustainable and climate-resilient economy. The central bank also guides all regulated entities to adopt clear, time-bound coal phaseout plans as part of credible transition strategies.