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The Reserve Bank of India on Tuesday issued detailed guidelines for acceptance of ‘green deposits’ by banks and NBFCs wherein the funds could be used for financing activities like renewable energy, green transport and green buildings.

Climate change has been recognised as one of the most critical challenges and globally, various efforts have been taken to reduce emissions as well as promote sustainability.

The financial sector can play a pivotal role in mobilising resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India, RBI said as it issued the framework for acceptance of green deposits by regulated entities.

Some Regulated Entities (REs) are already offering green deposits for financing green activities and projects.

The framework will come into effect from June 1, 2023.

The purpose and rationale for the framework, RBI said is to encourage REs to “offer green deposits to customers, protect the 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”.

Further, the central bank said the allocation of proceeds raised from green deposits should be based on the official Indian green taxonomy.

Pending the finalisation of the taxonomy, as an interim measure, REs would be required to allocate the proceeds raised through green deposits towards a specified list of green activities/projects.

The projects must 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.

Renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, and green buildings are among the list of projects/activities where REs could allocate the proceeds raised through green deposits.

RBI has also mentioned a list of ‘exclusions’ for REs. This includes projects involving new or existing extraction, production and distribution of fossil fuels; nuclear power generation; and direct waste incineration.

Banks and NBFCs will have to put in place a comprehensive board-approved policy on green deposits.