Overview

The RBI’s Framework for Acceptance of Green Deposits was released on April 11, 2023 and came into effect on June 1, 2023. It establishes a regulatory structure for banks and Non-Banking Financial Companies (NBFCs) to accept fixed-term deposits whose proceeds are earmarked exclusively for allocation towards green finance activities. Green deposits are denominated in Indian Rupees only and can be cumulative or non-cumulative in nature.

The framework is part of India’s broader push towards sustainable finance and aligns with the country’s climate commitments under the Paris Agreement and its target of achieving net-zero emissions by 2070.

Parameter Details
Regulator Reserve Bank of India (RBI)
Framework Release Date April 11, 2023
Effective Date June 1, 2023
Currency Indian Rupees only
Deposit Types Cumulative and Non-Cumulative
Third-Party Audit Mandatory annual independent verification
Impact Assessment Voluntary for FY 2023-24; mandatory from FY 2024-25

Eligible Issuers

  • All Scheduled Commercial Banks (including Small Finance Banks).
  • All deposit-taking NBFCs, including Housing Finance Companies (HFCs).
  • Excluded: Regional Rural Banks (RRBs), Local Area Banks, and Payment Banks.

Eligible Green Activities/Sectors

Proceeds from green deposits must be allocated to the following sectors:

  1. Renewable Energy — solar, wind, biomass, hydropower (up to 25 MW).
  2. Energy Efficiency — green buildings, energy-efficient equipment.
  3. Clean Transportation — electric vehicles, mass rapid transit, non-motorised transport.
  4. Climate Change Adaptation — climate-resilient infrastructure, information support systems.
  5. Sustainable Water and Waste Management — sustainable water management, wastewater treatment.
  6. Green Buildings — buildings meeting recognised green standards.
  7. Terrestrial and Aquatic Biodiversity Conservation — afforestation, reforestation, coastal/marine projects.
  8. Pollution Prevention and Control — waste recycling, pollution reduction.
  9. Certified Organic Farming — agricultural activities with organic certification.

Excluded Activities

  • Fossil fuel extraction, production, and distribution projects.
  • Nuclear power generation.
  • Direct waste incineration.
  • Landfill projects.
  • Hydropower plants exceeding 25 MW capacity.
  • Alcohol, weapons, tobacco, gaming, and palm oil industries.
  • New or existing extraction, production, and distribution of fossil fuels.

Governance and Transparency

Financing Framework

Regulated entities must put in place a comprehensive Board-approved Financing Framework before accepting green deposits. This framework must include:

  • A clear articulation of the green activities/projects to be financed.
  • Process for project evaluation and selection.
  • A description of the allocation and impact assessment.
  • A statement on Environmental, Social and Governance (ESG) risk assessment.

Third-Party Verification

  • Mandatory independent annual third-party verification/assurance of allocation of funds.
  • The verification must confirm that proceeds have been allocated to eligible green activities.
  • The verification report must be placed on the entity’s website.

Impact Assessment

  • Impact assessment was voluntary for FY 2023-24.
  • Mandatory from FY 2024-25 onwards — regulated entities must disclose the environmental impact of funds deployed.

Reporting

  • A review of the allocation of green deposits to green activities/projects must be placed on the regulated entity’s website within three months of the end of each financial year.
  • Any unallocated proceeds must be held in cash or cash equivalents until deployment.

Participating Banks

Banks offering green deposit products include Central Bank of India, HDFC Bank, HSBC India, Yes Bank, DBS India Bank, Federal Bank, and IndusInd Bank. Adoption by private sector banks has been slower compared to foreign banks operating in India.

Challenges

  • Lower Interest Rates: Green deposits often offer interest rates lower than comparable conventional fixed deposits, reducing investor appeal.
  • Limited Customer Awareness: Most retail depositors remain unaware of green deposit products.
  • Slow Private Bank Adoption: Many large private banks have been slow to launch green deposit products.
  • Greenwashing Risk: Without robust impact assessment, funds could be allocated to projects with marginal environmental benefits.
  • No Tax Incentives: Unlike green bonds, green deposits do not enjoy any tax benefits, limiting demand.

Latest Developments

  • October 2025: RBI released updated draft guidelines on green deposits for commercial banks, NBFCs, and Small Finance Banks with enhanced disclosure norms.
  • FY 2024-25 onwards: Impact assessment made mandatory for all regulated entities accepting green deposits.
  • January 2026: Climate Risk Horizons published an analysis urging RBI to tighten the framework to prevent greenwashing, recommending exclusion of certain transition activities from eligible sectors.
  • Banks like Federal Bank and IndusInd Bank expanded their green deposit offerings with dedicated campaigns for ESG-conscious investors.

Prelims Importance

  • Green Deposits Framework released by RBI on April 11, 2023; effective June 1, 2023.
  • Applicable to: Scheduled Commercial Banks (including SFBs) and deposit-taking NBFCs (including HFCs).
  • Excluded entities: RRBs, Local Area Banks, Payment Banks.
  • Denominated in Indian Rupees only.
  • Mandatory independent annual third-party audit of fund allocation.
  • Impact assessment mandatory from FY 2024-25.
  • Hydropower projects above 25 MW are excluded from eligible activities.
  • Fossil fuel, nuclear power, direct waste incineration, and landfill projects are excluded.
  • No tax incentives for green deposits (unlike green bonds).

Mains & Interview Importance

GS3 — Indian Economy: Inclusive Growth; Environment: Conservation and Pollution

  • Evaluate the effectiveness of RBI’s Green Deposits Framework in channelling private savings towards climate action. What are the barriers to adoption?
  • Discuss the role of green finance instruments (green deposits, green bonds, carbon credits) in achieving India’s net-zero target by 2070.
  • Analyse the greenwashing risk in green deposits and suggest measures to ensure genuine environmental impact.
  • Compare India’s Green Deposits Framework with global green finance regulations (EU Taxonomy, Green Bond Principles).

Interview Angle: “RBI’s Green Deposits Framework is a step towards sustainable finance, but uptake remains low. What incentives could drive adoption — should green deposits receive tax benefits similar to infrastructure bonds?”