International Banking Units in GIFT City are asking the IFSCA to relax the 5% green lending requirement for funds raised through the RBI’s foreign exchange swap facility. The massive surge in liquidity has made it difficult for banks to find enough sustainable projects to meet these targets. This regulatory request aims to align compliance burdens with the current influx of foreign currency capital.
Banks operating within the GIFT City International Financial Services Centre are seeking regulatory relief from mandatory sustainable lending targets. Under current IFSCA guidelines, these International Banking Units (IBUs) are required to allocate at least 5% of their total loan disbursements and specified investments into sustainable or green projects. Banks are now requesting an exemption for funds managed under the Reserve Bank of India’s foreign exchange swap facility, citing a mismatch between the high volume of incoming capital and the available green investment opportunities.
The challenge stems from the scale of liquidity flowing through the RBI’s swap window. As of August 31, data indicates that 20 IBUs at the GIFT IFSC had sanctioned over $54 billion in loans under this scheme, with total disbursements hitting $52.82 billion. Executives at these institutions argue that the existing pool of qualified green investment avenues in the region is currently too small to absorb such a large volume of capital while meeting the 5% mandate. This structural constraint makes it difficult for banks to deploy the funds efficiently without violating compliance requirements.
Banks are leaning on previous regulatory precedents to support their case. Earlier, the Reserve Bank of India granted relief on priority sector lending targets and waived cash reserve and statutory liquidity ratio requirements for specific fresh FCNR(B) deposits. Banking institutions are now asking the IFSCA to offer similar flexibility, arguing that the regulatory framework for sustainable lending must evolve to match the current realities of foreign currency capital inflows into the Indian market.
For investors, the outcome of this request carries operational significance. If the IFSCA grants the requested exemption, it could lower the compliance cost for banks and allow them to deploy capital with more flexibility. However, if the mandate remains unchanged, banks may face pressure to either adjust their lending strategies or struggle to hit the compliance target. The primary monitorable for the market will be the official response from the IFSCA. A decision to provide a carve-out or adjustment would signal a shift in how regulators balance environmental, social, and governance goals with the practical need to manage large-scale foreign currency liquidity effectively within the GIFT City financial hub.