Barriers of Green Banking Initiatives in Indian Banks An Interpretive Structural Modeling

The world's financial systems are the arteries through which money flows, powering everything from new factories to family homes. For decades, this flow has often ignored the health of the planet, fueling industries that damage the environment. Today, a shift is underway. Banks are being asked to become stewards of the Earth, directing funds toward clean energy, sustainable construction, and projects that protect nature rather than harm it. This concept, known as green banking, is not just about planting trees; it is about fundamentally changing how money is lent and invested to ensure a livable future. However, moving from intention to action is difficult. Just as a river cannot flow freely if blocked by rocks, the transition to green finance is stalled by a complex web of obstacles. Understanding these barriers is essential, because without knowing what is stopping the change, no amount of good will can clear the path.

Researchers Kiran Kumar K V and Prof. K. Padmasree from the Central University of Karnataka set out to map these obstacles within the Indian banking sector. They did not rely on guesswork or broad assumptions. Instead, they gathered a panel of eleven experts, including senior bank managers, academics, and financial analysts, to dissect the problem. Their goal was to identify the specific hurdles preventing banks from fully embracing green initiatives and to understand how these hurdles interact with one another. The team began by reviewing existing literature to find potential barriers, narrowing a long list down to fifteen, and then refining this further to twelve critical barriers based on the experts' judgment. These twelve included issues like a lack of awareness about green investments, insufficient government guidelines, the high cost and time required to start green projects, and a shortage of staff with the necessary expertise.

To see how these barriers fit together, the researchers used a method called Interpretive Structural Modeling. Imagine trying to understand a tangled knot of rope; you need to know which strand pulls on which to untangle it. This method allowed the team to ask the experts how each barrier influenced the others. They wanted to know if one problem, such as a lack of clear rules, caused another, like a shortage of trained staff, or if they all stood on their own. The results were surprising and revealing. The analysis showed that there is no single "root cause" or starting point in this knot. Instead, every one of the twelve barriers influences every other barrier with equal strength. They are locked in a state of total mutual dependence. If a bank tries to solve the problem of long start-up times without also addressing the lack of internal capacity or government support, the effort will likely fail because the other barriers will pull it back.

The researchers confirmed this finding using a second tool called MICMAC analysis, which categorizes factors based on how much they drive change and how much they depend on others. In many systems, you find some factors that are passive and just wait to be acted upon, while others are powerful drivers that change everything else. In this study, however, all twelve barriers fell into the same category: they are all highly active and highly dependent. They are the definition of a linked system. This means that the barriers are not isolated problems that can be fixed one by one. They form a single, interconnected web where a change in one area immediately ripples through all the others. To move forward, the banking sector cannot simply pick one barrier to remove; it must tackle the entire web simultaneously.

To see how this plays out in the real world, the team also looked at the public reports of Indian banks. They compared the sustainability disclosures of banks that had issued green bonds—financial tools specifically designed to fund environmental projects—against those that had not. The data showed a clear difference. Banks that issued green bonds spoke much more frequently about the environment in their reports. They used words like "climate," "carbon," "renewable," and "sustainability" far more often than their peers. Their reports were more detailed, covering topics from climate action to biodiversity protection with greater depth. However, the study also noted that issuing a green bond is not a magic switch that guarantees perfect behavior. Some banks without green bonds were still reporting well, while a few with green bonds were not as thorough as expected. This suggests that while green bonds encourage better reporting, the true commitment comes from a bank's overall strategy and culture, not just the financial instrument they use.

The study concludes that the path to green banking in India is blocked not by a single wall, but by a complex, self-reinforcing system of challenges. The barriers are so deeply intertwined that addressing them in isolation is ineffective. The researchers suggest that policymakers, regulators, and bank leaders must work together to create a holistic solution. They need to build capacity, create clear guidelines, and foster a culture of sustainability all at once. The findings offer a clear roadmap: the obstacles are real and significant, but they are also known. By understanding that these barriers are a single, connected system, the stakeholders involved can stop trying to fix them one by one and start working on a comprehensive strategy that moves the entire system forward. The money is ready to flow, but the channel must be cleared of this tangled web before it can reach its destination.