RBI releases framework for acceptance of green deposits

The Reserve Bank of India (RBI) released the framework for acceptance of green deposits.8 Green deposit is an interest-bearing deposit received by RBI regulated entities (such as banks) for a fixed period. The proceeds of such deposits are allocated for green finance. Green finance involves investing in activities/projects which contribute to climate risk mitigation, climate adaptation and resilience, and other climate-related/environmental objectives. The framework will come into effect from June 1, 2023.

Key features include:

▪ Allocation of proceeds: The use of proceeds raised through green deposits will be based on official Indian green taxonomy. Until such taxonomy is finalised, regulated entities will be required to allocate proceeds to projects in sectors such as: (i) renewable energy, (ii) clean transportation, (iii) sustainable water and waste management, (iv) pollution prevention and control, and (v) sustainable management of living natural resources and land use.

▪ Third-party verification: The allocation of funds raised through green deposits in a financial year will be subject to annual independent third-party verification. The verification must cover aspects involving: (i) use of proceeds in accordance with eligible green activities/projects, and (ii) policies and internal controls including project evaluation and management of funds.

▪ Reporting: A review report must be placed before the board of directors of regulated entities within three months after the end of a financial year. The review must cover certain details including: (i) amount raised from green deposits in previous financial years, (ii) list of green activities/projects where funds were allocated, (iii) amount allocated to eligible green activities/projects, and (iv) copy of third-party verification/assurance report.