RBI urged to consider climate in big projects

Thirteen organisations responded to RBI’s recent draft framework related to projects.
File Photo
File Photo

Civil society organisations have urged the Reserve Bank of India (RBI) to incorporate climate and social considerations in the project finance framework, saying huge funds have gone waste for not factoring in environmental challenges in big projects.

The organisations have advocated for mandatory climate risk assessments and sustainable practices to be integrated into the project finance framework.

“This integration is crucial for mitigating long-term environmental impacts and ensuring that financed projects do not adversely affect vulnerable communities,” said Amitanshu Verma of the Centre for Financial Accountability (CFA). The CFA advocates for responsible financing practices.

“Project finance in India is not only economically viable but also socially equitable and environmentally sustainable,” he further said.

Recently, the RBI released a draft framework related to projects under implementation. The draft lacks several critical areas related to environmental, climate change and social considerations, said these organisations.

The RBI’s draft ‘Prudential Framework for Income Recognition, Asset Classification, and Provisioning (IRACP-PUIMP) pertaining to Advances - Projects Under Implementation Directions 2024’ was released last month and invited public comments by June 15.

A group of 13 organisations led by the CFA responded to the RBI’s framework, saying there was inadequate examination of cost overruns and project non-performance.

“By not sufficiently analysing the causes of these issues, the framework misses an opportunity to create more effective resolution plans based on past learnings. This gap is particularly evident in major infrastructure and energy projects that have faced significant cost overruns and fallen into non-performing asset (NPA) status,” said the CFA in its response.

Another key aspect of the response is the role of commercial banks in project finance. The CFA recommended revisiting this involvement, emphasising that Development Finance Institutions (DFIs) are better suited to handle large-scale infrastructure projects.

Furthermore, the current guidelines fall short in mandating robust environmental, social and climate safeguards at the level of financial institutions, it said.

The response also underscored the need for mandatory public consultations and periodic social audits to ensure transparency and community involvement in projects. These measures are essential for safeguarding the interests of local populations and ensuring equitable development, it added.

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