New RBI Directions on Climate Finance for Small Finance Banks
Current · Source: Reserve Bank of India · RBI/DOR/2025-26/203 · issued 28 Nov 2025 · ~1 min read
Quick answerThe RBI has issued fresh guidelines, effective immediately, that require all Small Finance Banks to adopt board‑approved policies for green deposits, publish them online, verify projects independently, and embed climate‑risk assessment into their existing risk frameworks while ensuring transparent reporting.
The rule, in the simplest words
Small Finance Banks must create a board-approved policy for green deposits [special accounts for environmentally friendly projects]
Banks must only use green deposit money for projects that are good for the environment [like solar or wind energy, but not fossil fuels]
Banks need to check if the projects they fund are really helping the environment [through independent verification and impact assessments]
Banks must tell the public about their green deposit policy and how it's working [through transparent reporting]
How it plays out — a real example
A risk manager at a Small Finance Bank in Mumbai will use these new rules to review a potential loan for a solar panel project, making sure it fits the bank's green deposit policy and doesn't pose any climate-related risks. They will also work with a third-party verifier to ensure the project is truly environmentally friendly. By following these steps, the risk manager can help the bank make a positive impact on the environment while also managing risks.
What changed
The RBI introduced a dedicated set of directions for Small Finance Banks covering green deposits and climate‑risk management. The framework makes board‑level approval and public disclosure mandatory and adds requirements for third‑party verification and impact reporting.
What it means for you
Banks will need to formalise a green‑deposit policy, allocate the proceeds only to qualifying green projects, and embed climate risk checks into credit appraisal and overall risk management.
What you must do
Draft and get board approval for a comprehensive green‑deposit policy and financing framework.
Publish the green‑deposit policy on the bank’s website for public access.
Set up a process for third‑party verification of green projects and conduct impact assessments.
Integrate climate‑risk analysis into the existing risk management system.
Prepare periodic reports and disclosures as prescribed by the RBI.
Who it affects
All Small Finance Banks, Board of Directors, Risk Management & Credit Teams, Depositors interested in green products
❓ Common questions
Do existing green‑deposit products need to be re‑structured?
Banks must align any current green‑deposit offerings with the new policy, including tenure, interest rates and earmarking of proceeds as per the RBI directions, if they intend to raise green deposits.
How often must banks report on green‑deposit usage?
Banks are required to submit periodic disclosures as outlined in the directions, but the specific frequency is not detailed in the provided source text.
📜 Read the original circular — full text as issued by RBI
Exclusions
• Projects involving new or existing extraction, production, and distribution of fossil fuels, including improvements and upgrades; or where the core energy source is fossil-fuel based.
• Nuclear power generation.
• Direct waste incineration.
• Alcohol, weapons, tobacco, gaming, or palm oil industries.
• Renewable energy projects generating energy from biomass using feedstock originating from protected areas. For the purpose of these Directions, feedstock primarily includes sewage, manure, wastewater, bagasse, biomass, wood pellets, etc.
• Landfill projects.
• Hydropower plants larger than 25 MW.
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/DOR/2025-26/203 · issued 28 Nov 2025. The plain-English explanation above is BankPulse’s own independent summary.
Integrate climate‑risk analysis into the existing risk management system.
📜 Compliance
Draft and get board approval for a comprehensive green‑deposit policy and financing framework.
Publish the green‑deposit policy on the bank’s website for public access.
Set up a process for third‑party verification of green projects and conduct impact assessments.
Prepare periodic reports and disclosures as prescribed by the RBI.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All Small Finance Banks, Board of Directors, Risk Management & Credit Teams, Depositors interested in green products), your first concrete step on “New RBI Directions on Climate Finance for Small Finance Banks” is: “Draft and get board approval for a comprehensive green‑deposit policy and financing framework.” (RBI issued this 28 Nov 2025).
Circular: RBI/DOR/2025-26/203 -- New RBI Directions on Climate Finance for Small Finance Banks
Issued: 28 Nov 2025
Action required: Draft and get board approval for a comprehensive green‑deposit policy and financing framework.
Action required: Publish the green‑deposit policy on the bank’s website for public access.
Action required: Set up a process for third‑party verification of green projects and conduct impact assessments.
Action required: Integrate climate‑risk analysis into the existing risk management system.
Action required: Prepare periodic reports and disclosures as prescribed by the RBI.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13106&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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