RBI Green Deposit Framework: Key Rules for Banks

RBI/2023-24/14 DOR.SFG.REC.10/30.01.021/2023-24 April 11, 2023 All Scheduled Commercial Banks including Small Finance Banks (excluding Regional Rural Banks, Local Area Banks and Payments Banks) All Deposit taking Non-Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs) Madam/Dear Sir, Framework for acceptance of Green Deposits Climate change has been recognised as one of the most critical challenges faced by the global society and economy in the 21st century. The financial sector can play a pivotal role in mobilizing resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India. 2. Deposits constitute a major source for mobilizing of funds by the Regulated Entities (REs). It is seen that some REs are already offering green deposits for financing green activities and projects. Taking this forward and with a view to fostering and developing green finance ecosystem in the country, it has been decided to put in place the enclosed Framework for acceptance of Green Deposits for the REs. 3. The framework shall come into effect from June 1, 2023. Yours faithfully, (Sunil T. S. Nair) Chief General Manager Framework for acceptance of Green Deposits A. Purpose/Rationale To encourage regulated entities (REs) to offer green deposits to customers, protect interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/projects. 1. Applicability The provisions of these instructions shall be applicable to the following entities, collectively referred to as regulated entities (REs): (a) Scheduled Commercial Banks including Small Finance Banks (excluding Regional Rural Banks, Local Area Banks and Payments Banks) and (b) All Deposit taking Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India under clause (5) of Section 45IA of The Reserve Bank of India Act, 1934 1 , including Housing Finance Companies (HFCs) registered under Section 29A of The National Housing Bank Act, 1987 2 . 2. Definitions In these guidelines, unless the context states otherwise, the terms herein shall bear the meaning assigned to them below: (a) "green activities/projects” means the activities/projects meeting the requirements prescribed in paragraph 7 of these guidelines; (b) “green deposit” means an interest-bearing deposit, received by the RE for a fixed period and the proceeds of which are earmarked for being allocated towards green finance; (c) “green finance” means lending to and/or investing in the activities/projects meeting the requirements prescribed in paragraph 7 of these guidelines that contributes to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives - including biodiversity management and nature-based solutions; (d) “greenwashing” means the practice of marketing products/services as green, when in fact they do not meet requirements to be defined as green activities/projects. All other expressions unless defined herein shall have the same meaning as have been assigned to them under The Banking Regulation Act, 1949 3 or The Reserve Bank of India Act, 1934, The National Housing Bank Act, 1987 or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be. B. Green Deposit Framework 3. Denomination, interest rates and tenor of deposits REs shall issue green deposits as cumulative/non-cumulative deposits. On maturity, the green deposits would be renewed or withdrawn at the option of the depositor. The green deposits shall be denominated in Indian Rupees only. The tenor, size, interest rate and other terms and conditions (as applicable to the RE) as defined in the Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 dated March 03, 2016 , Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 dated August 25, 2016 and Master Direction - Non-Banking Financial Company - Housing Finance Company (Reserve Bank) Directions, 2021 dated February 17, 2021 , as amended from time to time, shall also be applicable to green deposits mutatis mutandis. 4. Policy REs shall put in place a comprehensive Board-approved policy on green deposits laying down therein, all aspects in detail for the issuance and allocation of green deposits.  A copy of the above policy on ‘Green Deposits’ shall be made available on the website of the RE. C. Financing Framework 5. REs shall put in place a Board-approved Financing Framework (FF) for effective allocation of green deposits covering, inter-alia, the following: (i) the eligible green activities/projects that could be financed out of proceeds raised through the green deposits (as permitted below in paragraph 7 under “Use of Proceeds” ); (ii) the process for project evaluation and selection by the RE (i.e., climate-related or environmental objectives) including identifying the projects fit for lending/investing within the eligible categories, monitoring and validating the sustainability information provided by the borrower; (iii) the allocation of proceeds 4 of green deposits and its reporting, third-party verification/assurance of the allocation of proceeds and the impact assessment (as per the details given below in the paragraphs 8 and 9 under ’Third party Verification/Assurance and Impact Assessment’ ); and (iv) the particulars of the temporary allocation (which would only be in liquid instruments up to a maximum original tenure of one year, which shall be specified under the Financing Framework) of green deposit proceeds, pending their allocation to the eligible activities/projects. 6. A copy of the ‘Financing Framework’ specifying the above aspects shall be made available on the website of the RE. The RE shall also arrange to carry out an external review of their FF and the opinion from the external reviewer shall be made available on its website before implementation of the FF. D. Use of proceeds 7. The allocation of proceeds raised from green deposits shall be based on the official Indian green taxonomy. Pending finalization of the taxonomy, as an interim measure, REs shall be required to allocate the proceeds raised through green deposits towards the following list 5 of green activities/projects which encourage energy efficiency in resource utilisation, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation and value and improve natural ecosystems and biodiversity. Sector

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2023-24/14 · issued 11 Apr 2023. The plain-English explanation above is BankPulse’s own independent summary.

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