ABSTRACT

Environmental protection and awareness, and sustainable, ecological measures have emerged as
significant themes of our age and an increasing number of green technologies are also finding
their way into the banking branch. An increasing number of financial institutes are deliberately
turning to the sustainability theme and, as studies demonstrate, not without good reason. This is
because environmentally responsible behaviour on the part of banks is acknowledged by
customers and thus strengthens their loyalty. Sustainability along the entire value added chain
already commences during sourcing, which takes place in line with ecological principles. Further,
environmental impact might affect the quality of assets and also rate of return of banks in the longrun. Thus the banks should go green and play a pro-active role to take environmental and
ecological aspects as part of their lending principle, which would force industries to go for
mandated investment for environmental management, use of appropriate technologies and
management systems. This paper explores the importance of Green Banking, sites international
experiences and highlights important lessons for sustainable banking and development in India
small scale industries too.
Key words:
Small scale industries in India
Green technology

INTRODUCTION
The banking sector is major economic agent which influences the economic growth and
development in terms of both quality and quantity, there by changing the nature of economic
growth. Banking sector is one of the major sources of financing investment for commercial
projects which is one of the most important economic activities for economic growth. Therefore,
banking sector can play a crucial role in promoting environmentally sustainable and socially
responsible investment. Banking sector is generally considered as environmental friendly in terms
of emissions and pollutions. Internal environmental impact of the banking sector such as use of
energy, paper and water are relatively low and clean. Environmental impact of banks is not
physically related to their banking activities but with the customers activities. Therefore,
environmental impact of banks external activity is huge though difficult to estimate. Moreover,
environment management in the banking business is like risk management. It increases the
enterprise value and lowers loss ratio as higher quality loan portfolio results in higher earnings.
Thus, encouraging environmentally responsible investments and prudent lending should be one of
the responsibilities of the banking sector. Those industries which have already become green
and those, which are making serious attempts to grow green, should be accorded priority to
lending by the banks. This method of finance can be called as Green Banking, an effort by the
banks to make the industries grow green and in the process restore the natural environment. This
concept of Green Banking will be mutually beneficial to the banks, industries and the economy.
Not only Green Banking will ensure the greening of the industries but it will also
facilitate in improving the asset quality of the banks in future. Banking and other financial
institutions are more effective towards achieving this goal for the kind of intermediary role they
play in any economy and for their potential reach to the number of investors. Environment is no
longer the exclusive concern of the government and the direct polluters, but also the other partners
and stake- holders in the business. It would certainly give the much needed impetus for the
banking industry to expand the use of environmental information in their credit extension and
investment decisions. In this background, the paper aims to discuss the issues of sustainability in
banking and how banks can play a role for sustainable growth and development, particularly in the
Indian context.

OBJECTIVES

To study the importance of green banking for banks and economy.

To study management of environmental risk and identifying opportunities for innovative

environmentally oriented financial products.

To study environmental and control regulations regarding green banking in India.
To design proper environmental management system in the investment projects.
To create financial products and services that supports commercial development with
environmental benefits.

IMPORTANCE OF GREEN BANKING

Environmental protection and awareness, and sustainable, ecological measures have emerged as
significant themes of our age and an increasing number of green technologies are also finding
their way into the banking branch. Until recently, environmental concerns were not considered
relevant to the business operation of banks and financial institutions. Traditionally, banking
sectors concern for environmentally degrading activities of clients is like interfering or meddling
in their business affairs. However, now it is being perceived that dealing with environment brings
risks to their business. Due to strict environmental disciplines imposed by the competent
authorities across the countries, the industries would have to follow certain standards to run their
business. In the case of failure, it would lead to closure of the industries leading to a likelihood of
default to the bank.
The importance of Green Banking is immense for both the banks and economy by avoiding the
following risks involved in banking sector. The adoption of green banking strategies will help the
bank to deal with these risks involved in their business operation
.
Green banking strategies involves two components:

(1) Managing environment risk and

(2) Identifying opportunities for innovative environmentally oriented financial products.
To manage environmental risk, the banks have to design proper environmental management
systems to evaluate the risks involved in the investment projects. The risks can be internalized by
introducing differential interest rates and other techniques. Moreover, bank can withdraw itself
from financing high-risk projects. The second component of green banking entails creating
financial products and services that support commercial development with environmental benefits.
This includes investment in renewable energy projects, biodiversity conservation, energy
efficiency, investment in cleaner production. Thus, the banking and financial institutions should
prepare an environmental risk and liability guidelines on development of protective policies and
reporting for each project they Finance or invest. They can also have an environmental assessment
requirement for the projects seeking finance.
Environmental concerns are integrated into the international trade policy and often act as trade
barrier for environmentally sensitive goods (ESGs). So adopting environmentally sustainable
Technologies or modes of production is no more considered as a financial burden, rather it brings
new business opportunities and higher profit

GREEN BANKING IN INDIA

Indian industry faces the challenges of controlling environmental impact of their business i.e.
reducing pollution and emission of their clients. Though government has been trying to address
the issue by framing environmental legislations and encouraging industry to follow environmental
technologies and practices, public awareness and inability to derive competitive advantage by
producing eco-friendly products.
Indias is the worlds sixth largest and second fastest growing country in terms of producing green
house gases. Delhi, Mumbai and Chennai are the three of the worlds ten most polluted cities.
The major polluting industries in India are(a) Primary metal industries namely zinc, copper, steel etc.
(b) Paper & pulp
(c) pesticides/insecticides
(d) Refines
(e) Fertilizers
(f) Tanneries
(g) Sugar
(h) Textiles
(i) chemicals/pharmaceuticals etc.
The banking operation and investment by financial institutions should take care of environmental
Management of these polluting industries by improving the overall environment, the quality and
Conversation of life, level of efficiency in using materials and energy, quality of services and
Products. In this context, the role of banking sector, which is on major financing sources to the
Industries, assumes high importance.

ENVIRONMENTAL REGULATIONS IN INDIA:The environmental regulations in India can be broadly classified into two broad categories

Command and control regulations and

Liability law.

1.

The command and control regulations are ex ante regulations that are designed to dissuade
environmentally damaging projects. This regulation is implemented by setting industry specific
pollution standards, scrutinizing the projects and granting/denying permissions by the concerned
authorities like Ministry of Environment and Forest.

2.

The liability laws are ex post in nature and are implemented by enforcing authorities through
imposing fines, closing down the defaulting industries etc.
Once legal framework for the environmental pollution standards are formulated in India, the
polluting industries either have to close down or have to make necessary investment to comply
with the standard. In this process these industries will lose their competitiveness in the
international market, which would directly affect Indian economy and the banking sector.
As far as Green Banking in India is concerned, the banking and financial institutions are
running behind the schedules compared to global trends. The British business newspaper and
Financial Times which together nominated following banks for Sustainable Banking Awards in
2006 for leadership and innovation in integrating social, environmental and corporate governance
objectives into their operations did not find a single Indian nationalized bank or major private
bank in the list except Yes bank.
Banks need to be more careful in India about the environmental aspects of their clients and
products because-

Future of exports and product market are going to go through strict environmental rules

and

eco-friendly product will have better market.

Increased demand for pollution controls equipments will require more financial assistance from

banks.
Reserve Bank of India (RBI) may follow environmental guidelines for the banks.
Recent announcement of the government to use economic instruments for environmental control
may include Banks in future.

Small Scale Sector in India and Green Banking: -

Industries irrespective of their size i.e. large, medium or small scale emit pollutants to the
environment. Though the large-scale industries are more capable of degrading the environment,
they have adequate financial resources to install pollution control equipment or waste treatment
plants to control pollution. Moreover, these large-scale industries are always in the eyes of the
government or the pollution control board, these industries strives hard to adhere to set emission
standards. But small-scale industries (SSIs), on account of their financial constraints may unable
to install the necessary equipment to meet the emission standards prescribed by
the competent authorities. Also because of their small scale of operation, the SSIs escape from
the eyes of the concerned authorities. SSI constitute major portion of Indian industry. These
industries account for about 40 percent of industrial production and 30% of total manufacturing
exports. Use of western technological systems in small scale industries produces enormous
gaseous, liquid and solid wastes. However, they may not be in a position to bear additional
expenditures on account of environment audit and pollution control equipments.
Therefore, banks need to apply different procedures to promote pollution controls like(1) Environmental pollution status of SSI
(2) Environmental Clearance from the appropriate authorities and
(3) Steps undertaken or proposed for disposal of solid, liquid and gaseous wastes before lending
to SSI in India.
For green banking, Bank should begin implementing procedures like(1) Assessment of risk due to environment
(2) Environmental audit management
(3) Assessment of credit requirement and loan follow up before investing on different projects.

GREEN BANKING: INTERNATIONAL INITIATIVES

The financial sectors growing adherence to environmental management system is attributed

to the direct and indirect pressures from international and local Non Governmental Organizations
(NGOs), multilateral agencies and in some cases the market through consumers. Some 200
financial institutions around the globe are signatories of this initiative statement to promote
sustainable development within the framework of market mechanisms toward common
environmental goals. The objective is to integrate the environmental and social dimension to the
financial performance and risk associated with it in the financial sector. As the commitment of this
UNEPFI statement goes, sustainable development is regarded basic to the sound business
management. It advocates for a precautionary approach towards environmental management and
suggests integrating environmental considerations into the regular business operations, asset
management, and other business decisions of the banks.
PRODUCT

KEY PRODUCT DESIGN AND RESULT/POTENTIAL

BANK

REGION

Home Mortgage

Government led green mortgage initiative. 1% reduction on interest

Dutch Banks

Europe

for loans that meet environmental criteria.

Generation Green Home Loan. Offered to both new and old

Bendigo Bank

Australia

TAF/Tridel

Canada

homes, so those with existing mortgages can take advantage of

Commercial

discounted rates.
Green Loans for new condos. Developer (Tridel) repays loan with

Building Loan

funds that would otherwise be spent on operating costs using

Home Equity

conventional equipment and material

Environmental Home Equity Program. For customers using line of

Loan

Bank

Visa Access Credit, bank will donate to an environmental NGO.

America
Bank signed a joint marketing agreement with Sharp Electronics Corporation Citigroup

of US
US

to offer customers easily accessible and convenient financing options to

Credit cards

purchase and install residential solar technologies.

Climate Credit Card. Bank will donate to WWF. Sum of donation

Rabobank

Europe

depends on the energy-intensity of the product or service purchased

with the card.
Existing cardholders can donate Visa WorldPoints rewards to organizations Bank
that invest in GHG reductions or redeem them for green merchandise.

of US

America

Green banking initiatives by Banks.

1. IndusInd Bank launches solar-powered ATMsIndusInd Bank inaugurated Mumbais first solar-powered ATM as part of its Green Office Project
campaign Hum aur Hariyali. It also unveiled a Green Office Manual - A Guide to Sustainable
Practices, prepared in association with the Centre for Environmental Research and Education

(CERE). IndusInds new Solar ATM replaces the use of conventional energy for eight hours per
day with eco-friendly and renewable solar energy. The energy saved will be 1980 kW hrs every
year and will be accompanied by a simultaneous reduction in CO2 emissions by 1942 kgs. The
uniqueness of this solar ATM is the ability to store and transmit power on demand (in case of
power failure) or need (time basis). In terms of costs, the savings will be substantial,
Approximately Rs. 20,000 per year in case of a commercial user with grid power supply. And in
areas with erratic power supply the solar will replace diesel generators and translate into savings
as high as Rs. 40,200 every year.
2.State Bank of India's Green Banking PolicyThe State Bank of India (SBI), as part of its Green Banking Policy, will set up windmills to
generate 15 MW of power in Tamil Nadu, Maharashtra and Gujarat for its own consumption. The
SBI chairman inaugurated the windmills set up at Panapatti village in Tamil Nadus Coimbatore
district on April 23, 2010. The mill in Tamil Nadu will generate 4.5 MW of power, while the
Maharashtra mill will have a capacity of 9 MW and Gujarat 1.5 MW. SBI was the first Bank in the
country to think of generating green power as a direct substitute to polluting thermal power and
implement the renewable energy project for captive use.

3. Citizens Bank: Green$ense Rewards

The Citizen bank Green$ense checking account will pay you ten cents every time you make a
paperless transaction in your checking account. This can be a significant amount of paper saved
for active bank customers who use a debit card, pay bills online, and set up automatic payments.
You can earn up to $120 a year in rewards from Citizens Bank and the debit card that they send for
your account is made out of recycled plastic.

FINDINGS

1.

As of now, environmentally sustainable units in India are not implemented to a fuller extent
because of the present set up of the companies. According to the environmental regulation of
green banking in India, industries are supposed to have an eco-friendly set up but the present set

2.

up cannot be changed instantaneously as it would create a financial burden for the industries itself.
According to the legal frame work of green banking, the Polluting industries either have to close
down or have to make necessary investment to comply with the standard. In this process these
industries will lose their competitiveness in the international market, which would directly affect

3.

Indian economy and the banking sector

Despite of all the odds banks are still trying to do their part in sustainable development by using
solar powered ATMs, Online and mobile banking initiatives etc, thus creating a path towards
green planet.
SUGGESTIONS FOR ECO-FRIENDLY BANKING

Green Credit Cards:

A green credit card allows cardholders to earn rewards or points which can be redeemed for

contributions to eco-friendly charitable organizations.

Online bankingConverting to an online savings account and mobile banking is the easiest way that you can do

your part to bank green and help the environment.

Paper-less bankingGreen banking includes setting up direct deposit to receive your paychecks, receiving electronic
statements from your bank and by paying bills online. All of these steps can drastically reduce the
amount of paper produced by your bank. Online banking and mobile banking are also highly

effective ways to keep track of your finances and to avoid late payment fees.
Remote depositsAnother green banking step you can take is to suggest that the company you work for sign up for a
product called "Remote Deposit". This service is offered by a growing number of banks to their
commercial customers. Remote deposit is the digital scanning and processing of checks, instead of
having bank customer have to physically deliver each check to their bank to make a deposit.

Remote deposit also allow banks to easily clear checks digitally.

Energy Consciousness:
Developing energy- consciousness, adopting effective office time management and automation
solutions and using compact fluorescent lighting ( CFL) can help banks save energy consumption
considerably. Banks can conduct energy audits in all their offices for effective energy

management. They can also switch over to renewable energy ( solar, wind, etc.) to manage their

offices and ATMs.

Using Mass Transportation System:
PSBs can become fuel efficient organization by providing common transport for group of officials
posted at one office.

Social Responsibility Services:

As part of the green banking strategies, Indian banks can initiate various social responsibility
services such as tree plantation camps, maintenance of parks, pollution check-up camps, etc.

CONCLUSION

There has not been much initiative in green banking by the banks and other financial
institutions in India.

It is time now that India should take some major steps to adhere to environment-sensitive
parameters, apart from financial projects.

In addition to mitigating risks, green banking opens up new markets and avenues for product
differentiation.

Not only Green Banking will ensure the greening of the industries but it will also facilitate in
improving the asset quality of the banks In future.

The survival of the banking industry is inversely proportional to the level of global warming.
Therefore, for sustainable banking, Indian banks should adopt green banking as a business model without
any further delay.

REFERENCES
Jan Willem van Gelder, (2006), Sustainable Banking in Practice: A closer look at the nominees
for the 2006 Financial Times Sustainable Banking Awards, Banktrack., Profundo.
Im Trend Banking Journal No.1_2010
Green Financial Products and Services A report of the North American Task Force (NATF) of
the United Nations Environment Programme Finance Initiative. August 2007.
Sustainable Green Banking:The Story of Triodos Bank by R.N. Dash.