RBI Releases Draft Climate Finance and Green Deposit Directions for Commercial Banks

The Reserve Bank of India released draft directions requiring commercial banks to assess climate risks, govern green deposits, and conduct annual third-party verification and impact assessments. The framework establishes India's regulatory standard for sustainable banking finance while tackling greenwashing through mandatory exclusions and public disclosure.

The Reserve Bank of India released the "Draft Reserve Bank of India (Commercial Banks – Climate Finance and Management of Climate Change Risks) Directions, 2025." The framework requires banks to assess climate risks, integrate them into existing risk management, and optimise credit toward genuine green activities, while addressing greenwashing to protect depositors. Green deposits must be denominated only in Indian Rupees, subject to the same interest and tenor guidelines as other deposits, with no differential rate, and funds raised prior to allocation.

The directions apply to all commercial banks, excluding Small Finance Banks, Local Area Banks, Payments Banks, and Regional Rural Banks. A Board-approved Financing Framework must define eligible green activities, evaluation processes, and temporary allocation rules, with unspent proceeds parked only in Level 1 High Quality Liquid Assets for up to one year. Eligible categories include Renewable Energy, Clean Transportation, Green Buildings, and Sustainable Water and Waste Management; prohibited uses include fossil fuels, nuclear power, and hydropower plants larger than 25 MW.

Affected banks should establish Board-approved Financing Frameworks and prepare for mandatory annual independent third-party verification of green deposit fund allocation, plus annual Impact Assessments quantifying effects using metrics such as GHG emissions avoided or energy generated per year. Both verification and impact assessment reports must be publicly disclosed on the bank's website. Banks should align lending with eligible green categories, respect the exclusions, and monitor the draft's finalisation to ensure governance and accountability.

Key figure — Exclusion threshold: green deposit proceeds prohibited for hydropower plants larger than 25 MW, plus fossil fuels and nuclear