With an attempt to mobilize funds towards green activities/projects, the Reserve Bank of India ("RBI") recently introduced the 'Framework for Acceptance of Green Deposits' ("Framework") vide its notification dated 11 April 2023. The Framework comes into force from 1 June 2023 and is applicable to: (a) all the scheduled commercial banks (including small finance banks but excluding regional rural banks, local area banks and payments banks) and (b) all deposit taking non-banking financial companies including housing finance companies registered with the RBI, (collectively referred to as the "Regulated Entities" or "REs").

  • Key Terms

The Framework defines the following key terms:

  • Green Deposit: Interest-bearing deposits received by REs for a fixed period which are to be earmarked for allocation towards green finance.
  • Green Finance: Lending and/or investing in activities and projects meeting specific requirements (as more particularly described later) that contributes climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives - including biodiversity management and nature-based solutions; and
  • Greenwashing: Practice of marketing products/services as green, when in fact they do not meet requirements to be defined as green activities/projects.
  • Denomination, interest rates and tenor of deposits

Under the Framework, Regulated Entities are permitted to issue green deposits as cumulative/non-cumulative deposits. The depositor may renew or withdraw green deposits on maturity. Such deposits shall be denominated in Indian Rupees. However, the tenor, size, interest rate and other terms and conditions in relation to the green deposits (as applicable to the Regulated Entity) will be governed by the Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 dated 3 March 2016, Master Direction - Non- Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 dated 25 August 2016 and Master Direction - Non-Banking Financial Company - Housing Finance Company (Reserve Bank) Directions, 2021 dated 17 February 2021.

  • Board-approved framework
  • Comprehensive Board-approved Policy: The Regulated Entities are required to formulate a comprehensive board-approved policy on green deposits. The policy must delineate (in detail) all the terms regarding the issuance and allocation of green deposits. A publicly accessible copy of this policy must be shared on the website of the Regulated Entity.
  • Board-approved Financing Framework: The Regulated Entities must also set up a Board-approved Financing Framework ("BFF") to ensure optimum allocation of green deposits. The BFF shall cover:
  • eligible projects/activities for allocation of green deposits;
  • process for project evaluation and selection by the Regulated Entity for lending/investing within the eligible categories under the Framework;
  • allocation of proceeds from green deposits along with its reporting, third party verification/assurance of such allocation and impact assessment (as more particularly described later);
  • details of temporary allocation of green deposit proceeds, only in liquid instruments for a maximum tenure of 1 (one) year, from the green deposits proceeds when pending allocation of the same in an eligible project/activity.
  • A publicly accessible copy of the BFF must be shared on Regulated Entity's website. Further, the Regulated Entity must ensure that the BFF is externally reviewed and the reviewer's opinion is available on its website prior to the implementation of the BFF.
  • List of eligible projects/activities
  • Eligible projects: Till finalization of the official Indian green taxonomy, the Regulated Entities are required to allocate proceeds from the green deposits in the following sectors1:

Renewable Energy: Solar/wind/biomass/hydropower energy projects which work towards integrating energy generation and storage and projects/activities that incentivise adoption of renewable sources of energy.

Energy Efficiency: Projects/activities involving design and construction of energy-efficient and energy-saving systems and installation of the same in buildings and other properties, lighting improvements, erection of novel low-carbon buildings and retrofits to existing buildings to improve energy-efficiency and reduction in electricity grid losses.

Clean Transportation: Projects/activities aimed at promotion of electrification of transportation along with adoption of clean fuels like electric vehicles as well as building charging infrastructure will also be eligible for investment from the proceeds of green deposits.

Climate Change Adaptation: Projects developed for creating more resilient infrastructure against climate change will be eligible for investment from the proceeds raised through green deposits.

Sustainable water and waste management: Projects/activities involving water efficient irrigation systems, installation and improvement of wastewater infrastructure for transport, treatment and disposal of the same, conservation of water and systems facilitating defence against floods.

Green buildings: Projects that target construction of buildings which meet regional, national or international standards for environmental performance will also be eligible for investment through proceeds from green deposits.

Sustainable Management of Living Natural Resources and Land Use: Projects/activities aiding management of agriculture, animal husbandry, fishery and aquaculture in an environmentally sustainable manner, sustainable forestry management, certified organic farming and research on living resources and biodiversity protection will also qualify for investment through proceeds from green deposits.

Terrestrial and aquatic biodiversity conservation: Projects/activities supporting coastal & marine environments and biodiversity preservation, including conservation of endangered species, habitats and ecosystem.

  • Ineligible projects: The following projects/activities will not be eligible for investment through proceeds from green deposits are follows:
  • projects with fossil-fuel based core energy and projects that include new or existing extraction, production and distribution of fossil fuels with improvements or upgradation of the same;
  • projects for generation of nuclear power;
  • direct waste incineration projects/activities;
  • industries in relation to alcohol, weapons, tobacco, gaming or palm oil;
  • projects for renewable energy generation from biomass using feedstock originating from protected areas;
  • landfill projects; and
  • projects involving hydropower plants larger than 25MW.
  • Third Party Verification/Assurance and Impact Assessment

The Framework mandates the Regulated Entities to undertake an independent third-party verification/assurance on annual basis for allocation of proceeds by them raised through green deposits during a financial year. However, such an assessment would not lead to the Regulated Entity escaping its obligation regarding the end-use of funds, for which internal checks and balances as laid down for other loans would have to be followed. Requirements mentioned in relation to the BFF and the list of eligible projects/activities would act as additional checkpoints while determining the end-use of funds.

The following aspects would have to be covered in the report for third-party verification/assurance:

  • use of proceeds raised from the green deposits to be utilized in accordance with the eligible projects/activities as listed out in paragraph 5 (list of eligible projects/activities). Further, the Regulated Entities must monitor the end-use of funds allocated against the deposits raised; and
  • policies and internal controls which include management of proceeds raised from green deposits, project evaluation and selection, verification of the sustainability information furnished by the borrower to the Regulated Entities and reporting as well as disclosures.

The Regulated Entities shall conduct an annual external assessment for the impact associated with the funds invested in green finance activities/projects through an impact assessment report. If the Regulated Entities fail to quantify the impact of their investment, they must disclose the reasons and difficulties encountered and provide a time-bound future plan to tackle the same. Such an assessment would be voluntary for the financial year 2023-24 but will become mandatory from financial year 2024-25 onwards.

  • Reporting and Disclosures

The Regulated Entities will be required to place before its board of directors within 3 (three) months from the end of the financial year which shall, inter alia, cover the following details:

  • the amount raised from green deposits in the previous financial year;
  • list of the green projects/activities to which the proceeds from the green deposits have been allocated, along with a brief detail of the projects;
  • the amounts earmarked for the eligible green activities/projects; and
  • a copy of the Third-Party Verification/Assurance Report and impact assessment report.

The Regulated Entities must provide appropriate disclosures in their annual financial statements on the portfolio-level information in relation to the utilization of the green deposit funds.

  • Comments

The RBI has recognised that banks and financial institutions have a key role to pay in attaining sustainable development. The Framework comes at the right time when concerns have been raised across the globe about environmental degradation and businesses have started to pivot towards environment friendly policies.

The Framework embraces three-line defence model to check utilisation of green deposits, through: (a) board-approved policy and BFF which will ensure that management of the Regulated Entities apprises itself of the potential climate-related financial risks and identifies process for evaluation and selection of projects for investment, (b) third party verification/assurance and impact assessments conducted externally which will ensure that an independent climate-related risk assessment is made, and (c) carrying out regular reviews of the internal control framework which is ensured by reporting and disclosure requirements on the Regulated Entities. Strict compliance of these conditions will be necessary to avoid any scope of green washing especially when a formal green taxonomy is yet to be notified.

Overall, the Framework is a step in the right direction and will surely incentivize banks and financial institutions in India to augment their green financing portfolios by engaging and supporting stakeholders looking to invest in sustainable projects.


1. The list is adopted from the list of eligible green projects falling under Eligible Categories defined in Table 1 of the Government of India's Framework for Sovereign Green Bonds' published on 9 November 2022.

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