RBI on April 11, 2023, enacted a framework (effective from June 1, 2023) for acceptance of green deposits by scheduled commercial banks, small finance banks, and deposit taking non-banking financial companies (including housing finance institutions) (‘Regulated Entities’ or ‘REs’). Green deposits are rupee denominated interest-bearing deposits received by an RE which are earmarked for allocation towards green financing activities / projects that encourage efficient resource utilization, reduce carbon emissions, promote climate resilience, and improve natural ecosystem and biodiversity.

The green deposits may be on a cumulative / non-cumulative basis and the extant regulatory norms on deposits (including on tenor and interest rate) applicable to the relevant REs have been extended to the green deposits accepted by the REs. REs are required to put in place a board-approved policy on green deposits and a financing framework for effective allocation of such deposits. Pending the finalization of the Indian green taxonomy, the framework sets out the list of eligible green activities/projects towards which proceeds received under such deposits can be allocated.

In order to monitor effective deployment and analyse the impact of funds towards green activities/ projects, REs are also required to: (i) conduct annual independent third-party verification/assurance; (ii) with the assistance of external firm, conduct impact assessment studies (mandatory from FY 2024-2025); and (iii) comply with the disclosure and reporting requirements prescribed under the framework.