RBI establishes framework for banks to accept green deposits

The Reserve Bank of India (RBI) has established a framework for financial institutions to provide customers with green deposits. The framework intends to promote the development of the country’s green finance ecosystem, and applies to all regulated institutions, including scheduled commercial banks and deposit-taking non-banking financial companies. 

The framework will take effect on June 1, 2023 and revenues from green deposits will be allocated in accordance with the official Indian green taxonomy which is still under finalisation. As an interim solution, banks will be compelled to use earnings from green deposits to fund renewable energy projects such as solar, wind, biomass, and hydropower projects that combine energy generation and storage. Green deposits can also be employed in energy efficiency, renewable mobility, and climate change adaptation. 

The issuance of funds obtained through green deposits will be subject to annual independent third-party verification and assurance. The third-party review will not absolve the bank of responsibility for the end-use of money. Banks must annually examine the impact of funds lent for or invested in green finance operations and projects, with the support of external firms, and publish an impact assessment report. 

The central bank stated that while the impact assessment is still in its early stages, it can be done voluntarily for the fiscal year 2023-24. However, the impact evaluation will become compulsory in 2024-25.