In India, in recent times, there has been an increase in focus of the financial system to move towards green financing. Green finance means lending to and/or investing in the activities/projects that contribute to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives - including biodiversity management and nature-based solutions. As stated by the Reserve Bank of India (RBI), the financial sector can play a pivotal role in mobilising resources and their allocation thereof in green activities/projects.

A key mode of green finance that has progressively gained traction is ‘green deposit’. Green deposit refers to an interest-bearing deposit, received by a Regulated Entity (RE) for a fixed period and the proceeds of which are earmarked for being allocated towards green finance.

Consequently, on 11 April 2023, RBI issued a Framework for Acceptance of Green Deposits (the framework). The framework is effective from 1 June 2023.

The framework aims to direct the flow of funds to sustainable projects and initiatives, protect the interest of the depositors and address greenwashing concerns. Key themes discussed in the framework are listed below:

  • Denomination, interest rates and tenor of deposits
  • Policy on green deposits
  • Financing framework
  • Use of proceeds for only green activities
  • Third-party verification
  • Assurance and impact assessment
  • Reporting and disclosures

In this issue of the First Notes, we have summarised the above key elements of this framework.

To access the text of the framework issued by RBI, please click here.