RBI’s Green Deposits Framework: Fueling India’s Transition to a Sustainable Economy

The Reserve Bank of India (RBI) has announced a new framework for the acceptance of green deposits, aimed at fostering the green finance ecosystem in the country. This article provides an overview of the framework and its applicability, with details on the purpose, denomination, interest rates, and other aspects.

RBI's Green Deposits Framework: Fueling India's Transition to a Sustainable Economy

Applicability of the Green Deposits Framework

Starting June 1, 2023, the framework will apply to all scheduled commercial banks (including small finance banks but excluding regional rural banks, local area banks, and payments banks) and all deposit-taking non-banking finance companies (NBFCs), including housing finance companies (HFCs).

Purpose of the Green Deposits Framework

The framework encourages regulated entities (REs) to offer green deposits to customers, protect depositors’ interests, help customers achieve their sustainability goals, address greenwashing concerns, and augment the flow of credit to green activities and projects.

Key Definitions

i) Green activities/projects: Activities or projects that meet the requirements prescribed in the framework’s paragraph 7.

ii) Green deposit: An interest-bearing deposit with a fixed period and proceeds earmarked for green finance.

iii) Green finance: Lending to or investing in activities or projects that contribute to climate risk mitigation, climate adaptation, resilience, or other climate-related or environmental objectives.

iv) Greenwashing: The practice of marketing products or services as green when they do not meet the requirements to be defined as green activities or projects.

Green Deposit Framework: Denomination, Interest Rates, and Tenor

Green deposits can be issued as cumulative or non-cumulative deposits and denominated in Indian Rupees only. The tenor, size, interest rate, and other terms and conditions applicable to green deposits will be defined in RBI’s Master Directions.

Green Deposit Policy and Financing Framework

REs 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 (FF) for effectively allocating green deposits to eligible green activities and projects.

Use of Proceeds from Green Deposits

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.

Third-Party Verification, Assurance, and Impact Assessment

REs must subject the allocation of funds raised through green deposits to independent third-party verification or assurance on an annual basis. They 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.

Reporting and Disclosures

REs are required to review and report on their green deposits and related activities, providing details such as 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.

Importance of Green Deposits in the Indian Economy

The importance of green deposits in the Indian economy cannot be understated, as they signify a shift towards a more sustainable and environmentally conscious financial sector. 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.

1. Supporting the National Agenda for Sustainable Development

The green deposits framework is in line with India’s commitment to achieving the United Nations’ Sustainable Development Goals (SDGs) and fulfilling its obligations under the Paris Agreement. By encouraging green finance, the RBI is supporting the national agenda for sustainable development, fostering innovation in clean technology, and driving investment in environmentally sustainable projects.

2. Attracting International Green Investments

The adoption of the green deposits framework can attract international investors looking for sustainable investment opportunities. As the global community becomes more environmentally conscious, the demand for green investments is growing. By establishing a robust framework for green deposits, India can position itself as an attractive destination for green finance, which in turn can boost the economy and create new jobs in the green sector.

3. Mitigating Climate Risks and Promoting Resilience

Green deposits can help mitigate climate risks and promote resilience by directing funds towards projects that address climate change adaptation and mitigation. By investing in green activities and projects, financial institutions can contribute to building a more resilient economy that is better prepared to face the impacts of climate change.

4. Addressing Greenwashing Concerns

The green deposits framework aims to address greenwashing concerns by providing clear guidelines for financial institutions on what constitutes green activities and projects. This ensures that green deposits are directed towards genuine green initiatives, promoting transparency and credibility in the green finance market.

5. Educating and Engaging Customers

The promotion of green deposits can also help educate and engage customers on the importance of sustainable finance. By offering green deposit products, financial institutions can encourage their customers to think about the environmental impact of their financial decisions and contribute to a more sustainable future.

In conclusion, the RBI’s green deposits framework represents a significant step forward in promoting sustainable finance in India. By providing a clear and comprehensive framework for green deposits, the RBI is encouraging the financial sector to support green activities and projects, which can have a positive impact on the environment, the economy, and the well-being of the Indian population.

RBI Notification dated April 11, 2023: Framework for acceptance of Green Deposits 

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