India’s ambition to lead the global energy transition stands at odds with a sobering reality: its banking sector continues to be deeply entangled with the coal industry.
The findings of a recent report which I co-authored raise urgent questions for the Reserve Bank of India (RBI). The analysis shows that most Indian banks lack exclusion policies for coal financing across power plants, mines or other coal infrastructure and don’t have clear transition plans, while 25–35% of their loan books remained tied to coal as of October 2023. Apart from an environmental concern, this is a systemic financial risk and the RBI cannot afford to sit on the sidelines.
India’s banks are hooked on coal
As the regulator and supervisor of India’s financial system, the RBI is tasked with safeguarding financial stability, protecting depositors and promoting the efficient functioning of banks. It also has a developmental mandate to support national objectives that now include an target of generating 500 gigawatts from non-fossil fuel sources by 2030, as well as India’s commitment to reach net zero by 2070.
The continued financing of coal projects by Indian banks undermines both mandates. Moreover, as a member of the Network for Greening the Financial System the RBI is expected to nudge banks to develop credible transition plans and support the decarbonisation of high-emitting sectors. This includes not only green lending but also financing transitions that align with science-based pathways and national climate goals.
Between 2016 and 2023, Indian banks extended nearly US$29bn in coal financing through direct loans and underwriting. Public sector banks accounted for around 75% of the loans while private banks contributed nearly 83% of the total underwriting.
Yet global and domestic financial signals show that coal is no longer a stable or profitable investment. Renewable energy is now cheaper, cleaner and less risky. Round-the-clock renewable power is being supplied at 3.5-4.5 rupees per kWh, well below the cost of new coal power at 6–7 rupees per kWh. Some research suggests there will be stranded coal assets worth $96.5bn by 2047, posing serious risks to bank balance sheets and the financial system as a whole.
So coal is no longer cost-competitive or strategically wise, yet Indian banks are pouring billions into supporting it. While a few banks like Federal Bank, Suryodaya Small Finance Bank, and RBL Bank have adopted coal phaseout policies, they remain exceptions in an otherwise risk-exposed sector.
What the RBI can do
This is where the RBI needs to intervene, urgently and decisively.
First, under its supervisory mandate the RBI can make it a requirement for banks to disclose their exposure to high-carbon sectors, including coal. Although Indian banks are required to disclose their exposure to different sectors under Basel’s Pillar 3 requirements, the classification of these sectors is too broad. For example, banks report exposure to “power” or “energy” sectors, but do not distinguish between coal, renewables or gas. This makes it difficult to assess actual climate-related financial risk or the level of alignment with India’s net-zero goals.
The draft framework for disclosing climate-related financial risks released in 2024 is a step in the right direction but it needs to be finalised and made mandatory.
Second, the RBI can guide all regulated entities to adopt clear, time-bound coal phaseout plans as part of credible transition strategies. These should align with both India’s climate goals and science-based pathways. It can set portfolio-level exposure limits for coal-related lending, just as it does for other risk-prone sectors. This would push banks to gradually reduce their coal exposure and reallocate capital to cleaner sectors.
Beyond penal capital requirements, the central bank should explore incentives for banks that adopt coal exclusion policies or direct finance towards green infrastructure, especially in alignment with India’s production-linked incentive schemes for renewables and energy storage.
Third, the RBI could incorporate transition risk analysis into its supervisory assessments, including through climate stress testing and scenario analysis. The RBI’s climate risk information system should be scaled rapidly to support this, equipping banks with high-quality data on physical and transition risks. This would help identify not just vulnerable assets, but also opportunities to finance renewable energy and green infrastructure.
Fourth, the RBI needs to go beyond enabling and begin mandating. It should create regulatory incentives and disincentives to direct capital away from coal. This could include differentiated capital requirements based on climate risk, or targeted lending frameworks for clean energy and transition finance.
Finally, it’s not just about policing risk. The RBI must act as the financial steward of a just transition. If poorly managed, phasing out coal industries will have social and regional consequences. The RBI should encourage financial institutions to develop inclusive transition strategies that support worker retraining, community resilience, and regional development in coal-dependent areas. Aligning financial flows with national goals is a public good that only a proactive regulator can deliver.
Coal dependence is not just a climate liability, it’s also an economic one. If the RBI wants to maintain public confidence and protect the financial system from long-term shocks, it needs to lead the energy sector out of the past and into a resilient, renewable future.
This page was last updated July 31, 2025
Written by
Anusha Das is a sustainable finance analyst at Climate Risk Horizons where she researches the intersection of climate change, financial risk and India’s energy transition. Her interest in climate finance began during her tenure as a statistical officer with the Indian government, where analysing national energy data revealed how deeply financial flows remained tied to coal, creating economic and environmental risks.
