The Reserve Bank of India (RBI) has provided a framework for banks to accept green deposits. Green deposits are interest-bearing deposits that are earmarked for use by banks in green finance projects.
The framework, released earlier in April, will come into effect in June and will require deposit-taking institutions to enact board-approved policies on green deposits. While banks will not be required to offer green deposits, the RBI encourages them to do so.
Under the framework, green deposits will need to be allocated under the official Indian green taxonomy, which is in development. Until then, the RBI has provided sectors under which green deposits may be used–including renewable energy, clean transportation and biodiversity conservation–and exclusions such as projects involving the extraction or production of fossil fuels. Lastly, the framework requires banks’ uses of green deposits to be subject to annual third-party verification and impact assessments.
This green deposit framework is the first of three that Governor Shri Shaktikanta Das has said the central bank would be releasing in the coming months. The others will relate to disclosing climate-related financial risks and climate scenario analysis and stress testing. The three frameworks come nearly a year after the RBI first issued a discussion paper on climate risk and sustainable finance in July 2022, which was broadly aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures.
India has announced plans to be net zero by 2070. As climate advocates from WWF have noted, banks in India “suffer a relatively high climate physical risk”. In 2019, India was the seventh most-affected country, according to the Global Climate Risk Index published by GermanWatch, with more than 2,000 climate-related fatalities and losses of nearly US$70bn. Accordingly, WWF notes that India could be exposed to green swan risks, “rare, unexpected events with extreme impacts which could trigger the next systemic financial crisis”.
The RBI currently has a D rating on the Green Central Bank Scorecard. Although it received high marks for research and advocacy, it did not perform as well on monetary and financial policy.
This page was last updated April 17, 2023
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