Green finance is having a moment in Indian banking. Barely a month goes by without a major bank announcing a new sustainability-linked lending framework, a green bond issuance, or a commitment to net-zero financing by some future date. The press releases are polished. The pledges are ambitious. The question is whether any of it translates into meaningful change.

Let’s look at what’s actually happening.

The Commitments

India’s banking sector has collectively pledged over INR 5 lakh crore (roughly US$60 billion) toward green and sustainable finance initiatives through various frameworks. State Bank of India raised $800 million through a green bond in 2025 — the largest ever by an Indian bank. HDFC Bank has committed to sourcing 100% renewable energy for its operations by 2030. Yes Bank, which has positioned itself as a sustainability leader, has issued multiple sustainability-linked bonds and established a dedicated green lending vertical.

The Reserve Bank of India has also stepped in, releasing its “Framework on Climate Risk and Sustainable Finance” in July 2025. The framework requires banks to assess climate-related financial risks, disclose their exposure to carbon-intensive sectors, and integrate climate considerations into their lending decisions.

At face value, this looks like progress. But the details matter.

What’s Actually Being Financed

When banks talk about “green finance,” the definition is broader than you might expect. According to the Climate Bonds Initiative, green finance should fund projects with clear environmental benefits — renewable energy, energy efficiency, clean transport, sustainable water management, and similar activities.

In practice, many Indian banks include any loan to a company that has an ESG policy, regardless of what the loan actually funds. A coal company that has published a sustainability report can receive a “sustainability-linked loan” if the loan agreement includes vague ESG targets. That’s not green finance. That’s creative classification.

The data supports this concern. A 2025 analysis by the Centre for Financial Accountability found that only 38% of the lending classified as “green” or “sustainable” by Indian banks actually went to projects with direct environmental benefits. The rest went to general corporate purposes at companies that happened to have ESG policies.

Renewable Energy: The Genuine Bright Spot

If there’s one area where Indian bank lending is making a real environmental difference, it’s renewable energy. Solar and wind project financing has grown substantially, with bank lending to the renewable sector reaching approximately INR 3.5 lakh crore in 2025.

This is driven partly by policy — India’s target of 500 GW of non-fossil fuel capacity by 2030 requires massive investment — and partly by economics. Solar power is now cheaper than new coal capacity in most of India, which means renewable energy loans are increasingly just good business.

SBI, PNB, and Bank of Baroda have all established dedicated renewable energy lending teams. The default rates on renewable energy loans have been considerably lower than the broader corporate lending average, which makes the sector attractive from a credit risk perspective as well.

Electric Vehicles: Growing but Still Small

EV financing is another area where green lending is genuinely new money going to a new sector. SBI launched a dedicated green car loan product in 2024 with reduced interest rates for electric vehicles, and several other banks have followed suit.

The challenge is scale. EVs still represent less than 5% of new vehicle sales in India, and the total EV loan book across the banking system is estimated at under INR 20,000 crore — meaningful but small relative to the overall auto lending market.

The infrastructure gap is the bigger issue. Financing EVs is only part of the equation. India needs charging infrastructure, battery recycling facilities, and grid upgrades to support mass EV adoption. Banks are beginning to finance these ancillary sectors, but slowly.

The Disclosure Problem

Perhaps the biggest issue with green finance in Indian banking is the lack of standardised disclosure. Different banks define “green” differently, report metrics differently, and set targets using different baselines. This makes it nearly impossible to compare progress across institutions or hold banks accountable for their commitments.

The RBI’s 2025 framework was supposed to address this, but it gave banks significant flexibility in how they classify and report green lending. Without a taxonomy that clearly defines what qualifies as “green” (India is developing one, but it’s still in draft form), banks can make their portfolios look greener than they are.

International standards like the EU Taxonomy provide a reference point, but they’re designed for European contexts and don’t always translate to Indian realities. India needs its own taxonomy, and it needs it soon.

Greenwashing Risks

Let’s be direct about this. Some of what’s happening in Indian banking green finance is greenwashing. Not all of it — there’s genuine progress in renewables, EVs, and some energy efficiency financing. But the gap between what banks announce and what they actually fund is large enough to be concerning.

The risk isn’t just reputational. If investors who bought green bonds discover that the proceeds funded general corporate lending rather than genuinely green projects, it undermines confidence in the entire sustainable finance market. India’s green bond market is still young and building credibility. A few high-profile greenwashing scandals could set it back significantly.

What Needs to Happen

For green finance in Indian banking to move from performance to progress, a few things need to change:

A clear national green taxonomy. Banks, investors, and regulators need a shared definition of what qualifies as green lending. The current ambiguity enables creative classification.

Mandatory, standardised disclosure. Self-reported green lending figures mean very little without external verification and consistent reporting standards across the sector.

Transition financing frameworks. India can’t move overnight from a coal-dependent economy to a green one. Banks need frameworks for financing the transition of carbon-intensive industries — helping them decarbonise gradually rather than simply excluding them from lending portfolios.

Accountability for commitments. Banks that make net-zero pledges should face scrutiny if their lending patterns don’t change to match. Press releases aren’t progress.

Indian banking has an enormous role to play in financing the country’s climate transition. The money is starting to flow in the right direction. But without rigour, transparency, and honest accounting, green finance risks becoming just another marketing exercise with a lot of zeroes attached.