Policy Update
Sudeepti Joshi
Background
India’s climate transition requires finance to move beyond public expenditure and conventional lending. Green deposits were introduced as one such instrument, allowing depositors to place funds with regulated financial entities with the proceeds earmarked for eligible green activities and projects.
The Reserve Bank of India (RBI) introduced the Framework for Acceptance of Green Deposits on April 11, 2023, with effect from June 1, 2023. The framework applied to scheduled commercial banks, including small finance banks, while excluding Regional Rural Banks (RRBs), Local Area Banks and Payments Banks. It also covered deposit-taking NBFCs, including Housing Finance Companies. The stated objectives were to mobilise resources for green activities, protect depositors, address greenwashing and increase the flow of credit to green projects (Reserve Bank of India [RBI], 2023).
The framework was introduced before India had a final official green taxonomy. As an interim arrangement, RBI adopted a list of eligible activities drawn from the Government of India’s Framework for Sovereign Green Bonds, issued in November 2022. This connected green deposits directly to the broader sovereign green finance architecture (RBI, 2023).
The framework also made green deposits different from ordinary deposits in one respect. The use of funds had to be tracked. Banks were required to establish Board-approved policies and financing frameworks, obtain external review of those frameworks, undertake annual third-party verification and publish impact assessments. Impact assessment was voluntary for FY 2023-24 but became mandatory from FY 2024-25 (RBI, 2023).
Functioning
Green deposits are interest-bearing deposits whose proceeds are earmarked for green finance. They can be issued as cumulative or non-cumulative deposits and are denominated in Indian rupees. The RBI framework does not make it compulsory for an eligible entity to raise green deposits. Once an entity chooses to offer them, it must follow the prescribed framework (RBI, 2023).
The financing framework is central to the mechanism. A regulated entity must specify how projects will be evaluated and selected, how proceeds will be allocated and monitored, and how reporting, third-party verification and impact assessment will be undertaken. Funds awaiting allocation may only be temporarily invested in permitted liquid instruments with a maximum original tenure of one year (RBI, 2023).
Under the 2023 framework, proceeds could be allocated across nine broad categories.
The framework excluded activities such as fossil-fuel extraction and distribution, nuclear power generation, direct waste incineration, alcohol, weapons, tobacco, gaming, palm oil, landfill projects and hydropower plants above 25 MW (RBI, 2023).
The regulatory structure changed on November 28, 2025. RBI issued separate Climate Finance and Management of Climate Change Risks Directions, 2025 for commercial banks and small finance banks. These Directions repealed the earlier standalone green-deposit framework for each category and folded green-deposit provisions into the broader climate-finance regime (RBI, 2025a, 2025b).
The revised framework introduced some changes. Commercial banks and small finance banks may now offer an overdraft facility against green deposits, subject to applicable conditions. Green-financed activities can also qualify under priority-sector lending where they meet the relevant requirements, and investments in Sovereign Green Bonds are covered under the framework (RBI, 2025a, 2025b).
For commercial banks, the 2025 Directions cover banking companies other than small finance banks, Payments Banks and Local Area Banks, as well as the State Bank of India. Small finance banks are governed through a separate set of directions. Deposit-taking NBFCs and HFCs are covered through a separate climate-finance framework.
Performance
No RBI-published aggregate figure for the total amount of green deposits raised across regulated entities appears in the sources reviewed. This limits an economy-wide assessment of the instrument and makes bank-level disclosures particularly important.
State Bank of India (SBI) provides one of the few publicly available examples. SBI introduced green deposits in January 2024. Its CARE Analytics and Advisory-assured impact report for January 2024 to March 2025 records ₹22.39 crore raised in FY 2023-24 and ₹105.92 crore in FY 2024-25, taking cumulative green deposits to ₹128.31 crore. All of these funds were allocated to electric vehicle loans under the Clean Transportation category (State Bank of India [SBI], 2025).
SBI’s FY 2025-26 report records another ₹189.08 crore in green deposits, taking the cumulative total to ₹317.39 crore by March 2026. The bank reports that the entire FY26 amount was allocated to its Green Car Loan portfolio, with no unallocated proceeds. The portfolio financed 1,420 EV loans during FY26, compared with 1,097 in FY25 and 269 in FY24 (SBI, 2026).
Annual mobilisation has increased each year, from ₹22.39 crore in FY24 to ₹105.92 crore in FY25 and ₹189.08 crore in FY26. The allocation pattern is harder to explain away. Across the entire period SBI has reported data for, the full portfolio has gone to electric vehicle financing.
This does not breach the framework, since Clean Transportation is an eligible category. But it shows that a broad regulatory list of eligible sectors does not by itself produce a diversified green-deposit portfolio.
Impact
The most visible impact from SBI’s green deposits has been financing electric vehicles. SBI’s first impact report used an emissions difference of 66 grams of CO₂ equivalent per kilometre and an annual driving distance of 12,000 kilometres, estimating 213.048 tonnes of annual emissions avoided from the 269 EVs financed in FY24 and 868.824 tonnes from the 1,097 EVs financed in FY25 (SBI, 2025).
The FY26 report uses a different basis. It calculates the difference between 213 grams and 162 grams of CO₂ equivalent per kilometre, resulting in 51 grams per kilometre and an estimated 0.612 tonnes of annual emissions avoided per vehicle. It reports 671.36 tonnes for the same 1,097 EVs financed in FY25, and 869.04 tonnes for the 1,420 EVs financed in FY26 (SBI, 2026).
The FY25 figure for the same 1,097 vehicles drops from 868.824 tonnes in the earlier report to 671.36 tonnes in the later one. The loans did not change. The emissions methodology did. The FY26 report’s own assumptions also shift across its tables, making it difficult to reconstruct a single calculation from the report alone.
SBI’s green car loans are not outside the RBI framework. They fit within it. The problem is whether reported impact can be compared across years when the methodology used to calculate it keeps changing.
At the regulatory level, the RBI framework does create a reporting structure through which this can be examined. Regulated entities must publish third-party verification and impact assessment reports, and annual disclosures must identify the amount raised, activities financed and amount allocated (RBI, 2023, 2025a). Still, the absence of an RBI-level aggregate is a real gap. The material reviewed does not show how much green-deposit capital has been mobilised across the regulated sector, how it is distributed across eligible categories, or how concentrated it is in particular institutions or sectors.
Emerging Issues
Limited Aggregate Visibility
The framework requires regulated entities to disclose green-deposit mobilisation and utilisation individually, but no consolidated figure for total green deposits raised across the regulated sector appears in the sources reviewed. Researchers, depositors and policymakers are left dependent on individual institutional disclosures. This is useful at the institution level but not enough to judge whether green deposits are becoming a meaningful source of climate finance at the system level.
Sectoral Concentration
SBI’s case shows this directly. Despite nine eligible categories under the 2023 framework, its entire ₹317.39 crore cumulative green-deposit portfolio had been allocated to EV financing by March 2026. This does not mean green deposits are concentrated across the banking sector generally, since SBI cannot be treated as representative. But it shows that a bank can fully comply with the regulatory definition of green finance while directing its green-deposit portfolio almost entirely toward one commercially viable segment.
Comparability of Impact Data
The gap between SBI’s two emissions calculations raises a broader reporting question. Third-party assurance can confirm that a bank’s reported methodology follows its own stated framework. It does not make different methodologies comparable across years or institutions. Common assumptions for indicators such as vehicle emissions, annual kilometres travelled, and project-level baselines would make impact reports usable for policy evaluation rather than only internally consistent.
Changing Regulatory Perimeter
The 2025 Directions moved green deposits from a standalone framework into a wider climate-finance regulatory structure, with separate directions for commercial banks and small finance banks, and NBFCs/HFCs covered through their own climate-finance directions. The original 2023 framework excluded RRBs, Local Area Banks and Payments Banks. The 2025 commercial-bank directions continue to exclude Payments Banks, Local Area Banks and Small Finance Banks, with the latter governed separately (RBI, 2023, 2025a, 2025b). This segmented structure reflects differences between regulated entities, but it also makes cross-institution comparison harder. The regulatory architecture now has to be read across multiple sets of directions rather than one standalone framework.
The Missing Green Taxonomy
Both the 2023 framework and the 2025 Directions point to the official Indian green taxonomy as the eventual basis for determining eligible activities. Until it is finalised, the framework relies on interim eligible categories (RBI, 2023, 2025a), leaving room for differing interpretations across institutions and products.
Way Forward
Publish System-Level Green Deposit Data
RBI could periodically publish aggregate data on green deposits raised across regulated entities, alongside a sector-wise breakdown of allocation. A consolidated dataset would show whether green deposits are expanding beyond individual bank-level initiatives into a system-wide instrument.
Standardise Impact Methodologies
Impact assessment should move toward common calculation methodologies for major indicators. For clean transportation specifically, reporting could separately identify the vehicle segment, baseline vehicle type, emissions factor, annual distance assumption and calculation period, so the same portfolio does not produce materially different impact estimates simply because the calculation method changed between reports.
Track Concentration Across Green Categories
Banks should disclose not just whether funds qualify as green, but how their green-deposit portfolios are distributed across eligible categories. This would show whether green deposits are supporting a broad range of environmental activities or being channelled mainly toward a few commercially attractive sectors.
Improve Cross-Entity Comparability
RBI could develop a common reporting template covering deposits raised, allocation by category, unallocated funds, project-level indicators and methodology. The 2023 framework already provides a portfolio-level disclosure format. Building on this under the 2025 climate-finance directions could reduce how differently banks currently present comparable data.
Clarify the Role of the Green Taxonomy
Finalising the official Indian green taxonomy matters for regulatory consistency, since both frameworks treat it as the eventual basis for allocation. Until then, the interim category system remains the operative basis for green-deposit allocation (RBI, 2025a, 2025b).
The 2025 reform places green deposits within a broader climate-finance and climate-risk framework. What happens next depends on whether this structure produces comparable data, wider mobilisation and measurable environmental outcomes, rather than simply increasing the number of financial products classified as green.
References
Reserve Bank of India. (2023, April 11). Framework for acceptance of green deposits (RBI/2023-24/14; DOR.SFG.REC.10/30.01.021/2023-24). https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12487&Mode=0
Reserve Bank of India. (2025a, November 28). Reserve Bank of India (Commercial Banks – Climate Finance and Management of Climate Change Risks) Directions, 2025. [Verify circular number and locate RBI-hosted URL before submission.
Reserve Bank of India. (2025b, November 28). Reserve Bank of India (Small Finance Banks – Climate Finance and Management of Climate Change Risks) Directions, 2025. [Locate RBI-hosted URL before submission.
State Bank of India. (2025). Impact reporting of green deposits: Impact analysis report by CARE Analytics and Advisory Private Limited, January 2024–March 2025. https://sbi.bank.in/documents/17836/3726866/Impact+Reporting+of+Green+Deposits.pdf/a38e7ef6-b14b-f799-4459-674d3ea28116
State Bank of India. (2026, May 18). Green deposit impact assessment report: FY 2025-26. https://sbi.bank.in/documents/17836/0/18082026_Impact+Analysis+Report_Green+Deposit_FY+2025-26.pdf/c9e5313d-56a9-9718-e4b0-f8f1c7620ed3
About the Contributor
Sudeepti Joshi is a second-year B.A. (Hons.) Economics student at Dayal Singh College, University of Delhi. Her academic and research interests include economics, public policy, development and institutional finance.
Acknowledgements
The author extends sincere gratitude to Sneha Kohli, Amrutha for their valuable guidance, support, and review of the Policy Update.
Disclaimer
All views expressed in the article belong solely to the author and not necessarily to the organization.
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