The “Framework for Acceptance of Green Deposits” is an initiative introduced to align India’s financial sector with environmental sustainability efforts. Scheduled to take effect from June 1, 2023, this framework aims to mobilize financial resources toward green activities and projects by leveraging green deposits. These deposits are designed to fund projects that mitigate climate risks, promote resilience, and support other environmental objectives, including biodiversity and nature-based solutions.
Key Components of the Framework
Purpose and Rationale:
- The framework encourages regulated entities (REs), such as commercial banks and non-banking financial companies (NBFCs), to offer green deposits. The goals are to protect depositor interests, support customers in achieving their sustainability goals, address greenwashing, and enhance credit flows to environmentally friendly projects.
Applicability:
- This framework applies to Scheduled Commercial Banks (excluding certain types like Regional Rural Banks), Small Finance Banks, and all deposit-taking NBFCs registered under specific RBI acts. These entities are collectively referred to as regulated entities (REs).
- Definitions:
- Green Activities/Projects: Defined as projects that meet specified environmental criteria.
- Green Deposits: Interest-bearing deposits for a fixed term, with proceeds earmarked for green finance.
- Green Finance: Lending or investing in projects that fulfill predefined environmental criteria.
Deposit Specifications:
- Green deposits must be issued as either cumulative or non-cumulative, with details like denomination, interest rates, and tenure being governed by existing regulations adapted for green purposes.
Policy and Financing Framework:
- REs are required to establish comprehensive, board-approved policies and financing frameworks detailing the issuance, allocation, and management of green deposits. These frameworks must outline the process for evaluating and selecting projects, managing proceeds, and ensuring transparency and accountability.
Use of Proceeds:
- Funds from green deposits are to be allocated to eligible green projects, such as renewable energy initiatives, energy-efficient constructions, and clean transportation systems. Allocation must align with an official Indian green taxonomy, with a list of interim eligible activities provided until the taxonomy is finalized.
Third-Party Verification and Impact Assessment:
- An independent third-party must annually verify that funds are used as intended. REs must also conduct impact assessments to evaluate the effectiveness of their investments in green projects.
Reporting and Disclosures:
- REs must disclose the amounts raised and allocated through green deposits, along with impact assessments, in their annual financial statements and on their websites.
This framework represents a strategic shift towards integrating financial practices with sustainable development goals, ensuring that India’s financial institutions contribute effectively to environmental sustainability.
Access the full RBI circular here
