The Reserve Bank of India (RBI) has introduced a new framework for green deposits, aimed at promoting green finance in the country. The framework will be effective from June 1, 2023, and will apply to all scheduled commercial banks and deposit-taking non-banking finance companies, including housing finance companies. The RBI’s green deposit framework aims to encourage regulated entities to offer green deposits to their customers, augment the flow of credit to green activities and projects, and address greenwashing concerns.
Green deposits are interest-bearing deposits with a fixed period, and the proceeds are earmarked for green finance. The tenor, size, interest rate, and other terms and conditions of green deposits will be defined in the RBI’s Master Directions. Regulated entities must establish a comprehensive board-approved policy on green deposits, outlining aspects such as issuance and allocation. They must also implement a board-approved financing framework for effectively allocating green deposits to eligible green activities and projects.
The allocation of proceeds raised from green deposits must be based on the official Indian green taxonomy, which includes renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, sustainable management of living natural resources and land use, and terrestrial and aquatic biodiversity conservation. The allocation of funds raised through green deposits must be subject to independent third-party verification or assurance on an annual basis. Regulated entities must also assess the impact of their green finance activities or projects through an Impact Assessment Report, which is to be made available on their website.
Regulated entities must review and report on their green deposits and related activities, including the amount raised, the allocation of proceeds, and the results of third-party verification and impact assessment. This information must be disclosed in their Annual Financial Statements.
The RBI’s green deposit framework signifies a shift towards a more sustainable and environmentally conscious financial sector in India. By promoting green deposits, the RBI is acknowledging the critical role that the financial sector can play in mobilizing resources for green activities and projects. This is in line with global trends, where the demand for green finance is growing rapidly as countries and businesses strive to transition to a low-carbon economy.