Banking Regulation 2024 Comparisons

Principal Laws and Regulations Governing the Banking Sector

• The Banking Regulation Act, 1949 (BRA) is the primary legislation that regulates banking in India. It lays down the licensing requirements, businesses that a bank may engage in, capital requirements, requirements relating to the constitution of board of directors of banks, among others. 

• Rules, regulations, directions and guidelines on issues relating to banking and the financial sector are issued by the Reserve Bank of India (RBI) under the Reserve Bank of India Act, 1934 (the “RBI Act”) and the BRA. These guidelines/directions lay down prudential norms on income recognition, asset classification and provisioning, know-your-customer directions, rules regarding acquisition/holding of shares in banking companies, fit and proper criteria for directors on the board of banking companies, guidelines for securitisation of assets, transfer of loan exposures, among others. 
• The Foreign Exchange Management Act, 1999 governs cross-border transactions and related issues, and provides, among other things, the framework for licensing of banking and other institutions as authorised dealers in foreign exchange.
• Other legislation relevant to the banking sector includes: 

1. the Insolvency and Bankruptcy Code, 2016, which lays down the regime for reorganisation and insolvency resolution of companies, partnerships and individuals;
2. the Recovery of Debts and Bankruptcy Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which lays down the framework for debt recovery and security enforcement by banks and financial institutions; 
3. the Payment and Settlement Systems Act, 2007, which regulates the payment systems in India; and 
4. specific legislation for public sector banks: government owned banks are also subject to specific legislation under which they were formed, eg, the State Bank of India is a public sector bank formed under the State Bank of India Act, 1955. 

Regulators Responsible for Supervising Banks

• The RBI is the central bank of India and the primary regulatory authority for supervising banks. The RBI has wide-ranging powers which include prescribing prudential norms, laying down requirements for setting up and licensing banks (including branches of foreign banks in India), corporate governance related norms, among others.
• India has several other financial sector regulators, including:

1. the Securities Exchange Board of India (SEBI), which is the regulatory authority for the securities market in India;
2. the Insurance Regulatory and Development Authority of India (IRDAI), which is the regulatory authority for the insurance sector; and 
3. the Insolvency and Bankruptcy Board of India, which regulates the insolvency and bankruptcy regime under the Insolvency and Bankruptcy Code (IBC).

Broadly, the types of licences can be split into two categories:

• universal licence; and 
• special licence for small finance banks and payment banks.

No company is allowed to carry on banking business in India unless it has obtained a licence from the RBI in accordance with the BRA and the RBI Guidelines for “on-tap” Licensing of Universal Banks in the Private Sector, 2016 (the “On-Tap Guidelines”). The On-Tap Guidelines prescribe eligibility requirements for the promoters of the applicants, shareholding requirements including minimum capitalisation requirements, etc.

Dealing in foreign exchange requires a separate licence as an authorised dealer which is issued by the RBI under the Foreign Exchange Management Act, 1999. 

Activities and Services Covered 

A licensed banking company can also engage in certain other forms of business such as guarantee and indemnity business, factoring, equipment leasing and hire purchase, underwriting, insurance business with risk participation through a subsidiary/joint venture and securitisation, among others, in accordance with the terms of the BRA and the RBI’s Master Direction on Reserve Bank of India (Financial Services provided by Banks) Directions, 2016. 

Licence Application Process

• The licensing window is open on-tap, and the applications can be submitted in the prescribed form to the RBI at any point of time.
• The RBI assesses whether the applicant meets the eligibility criteria laid down in the On-Tap Guidelines (as described below). 
• Following this, the application is referred to a Standing External Advisory Committee (SEAC) set up by the RBI. The SEAC comprises of eminent persons with experience in banking, financial sector and other relevant areas. The tenure of the SEAC is three years. The SEAC has the right to call for more information as well as have discussions with any applicant/s and seek clarification on any issue as may be required by it.
• The SEAC submits its recommendations to the RBI for consideration. The Internal Screening Committee (ISC), consisting of the governor and the deputy governors, examines all the applications and then submits its recommendations to the Committee of the Central Board of the RBI for the final decision to issue in-principle approval. 

Some of the key requirements under the On-Tap Guidelines include the following. 

• Eligible promoters (ie, the person who together with their relatives (as defined in the Companies Act, 2013), by virtue of their ownership of voting equity shares, are in effective control of the bank and includes, wherever applicable, all entities which form part of the promoter group) include resident individuals and professionals having ten years of experience in banking and finance at a senior level.
• Promoter/promoting entity/promoter group should be “fit and proper” in order to be eligible to promote banks.
• The board of the directors of the bank should have a majority of independent directors.
• The RBI assesses the “fit and proper” status of the applicants on the basis of the following criteria.
1. Where promoters are individuals:
1. each of the promoters should have a minimum ten years of experience in banking and finance at a senior level;
2. the promoters should have a past record of sound credentials and integrity; and
3. the promoters should be financially sound and should have a successful track record of at least ten years.
2. Where promoters are entities/NBFCs:
1. the promoting entity/promoter group should have a minimum ten years of experience in running their businesses;
2. the promoting entity and the promoter group should have a past record of sound credentials and integrity;
3. the promoting entity and the promoter group should be financially sound and should have a successful track record of at least ten years; and
4. preference will be given to promoting entities having diversified shareholding

Conditions for Authorisation

While considering a licence application, the RBI considers the following factors as per the BRA, among others:

• that the company is or will be in a position to pay its present or future depositors in full as their claims accrue;
• that the affairs of the company are not being, or are not likely to be, conducted in a manner detrimental to the interests of its present or future depositors;
• that the general character of the proposed management of the company will not be prejudicial to the public interest or the interest of its depositors;
• that the company has adequate capital structure and earning prospects (currently, the initial paid-up voting equity share capital/net worth required to set up a new universal bank is INR10 billion);
• that the public interest will be served by the grant of a licence to the company to carry on banking business in India;
• the grant of the licence would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth; and
• any other condition, which in the opinion of the RBI, is necessary to ensure that the carrying on of banking business in India by the company will not be prejudicial to the public interest or the interests of the depositors.

The On-Tap Guidelines also specify that the bank should get its shares listed on the stock exchanges within six years of the commencement of business by the bank.

The application form is provided in the Banking Regulation (Companies) Rules, 1949. 

Foreign Applicants

In addition to the requirements specified above, in the case of foreign entities the RBI must also be satisfied that:

• the government or law of the country in which the foreign bank is incorporated does not discriminate against banking companies registered in India; and
• the banking company complies with the provisions of the BRA that apply to banking companies incorporated outside India.

The RBI has also issued additional guidelines and requirements for foreign banks seeking a licence to operate through a branch or a wholly owned subsidiary. 

Timing and Basis of Decision

No specific timeline is prescribed for deciding on an application but, typically, the process can be expected to take about 18 months or longer. 

Cost and Duration

There are no specific ongoing costs associated with a bank licence. Usually, bank licences issued by the RBI are not subject to an expiry date. 

Requirements on shareholdings and change of control in banks in India are governed by the BRA and the RBI (Acquisition and Holding of Shares or Voting Rights in Banking Companies)Directions, 2023. 

Key requirements/restrictions relating to acquisition or increasing control over a bank are the following.

• The BRA and the RBI (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023 provides that acquisition of 5% or more of the paid-up capital of a bank or total voting rights of a bank requires the prior approval of RBI (this is not applicable to foreign banks operating through a branch in India and banks established under specific statutes).
• Any person acquiring 5% or more is required to make an application to the RBI in a prescribed form. The RBI undertakes a due diligence to assess the “fit and proper” status of the applicant.
• Persons from Financial Action Task Force (FATF) non-compliant jurisdictions are not permitted to acquire major shareholding (ie, 5%) in the banking company.
• In Indian banks, foreign shareholders can hold up to 74% of a private bank’s paid-up equity share capital. However, Indian residents shall at all times hold at least 26% of the paid-up share capital of private sector banks (except in regard to a wholly-owned subsidiary of a foreign bank). Additionally, a non-resident entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest in India only with the prior approval of the government.

The following limits apply on shareholding.

• For non-promoters:
1. 10% of the paid-up share capital or voting rights of the banking company in case of natural persons, non-financial institutions, financial institutions directly or indirectly connected with large industrial houses and financial institutions that are owned to the extent of 50% or more or controlled by individuals (including the relatives and persons acting in concert); or
2. 15% of the paid-up share capital or voting rights of the banking company in case of financial institutions (excluding those mentioned in the paragraph above), supranational institutions, public sector undertaking and central/state government.
• For promoters: 
1. 26% of the paid-up share capital or voting rights of the banking company after the completion of 15 years from commencement of business of the banking company. Before the completion of five years, the promoters of banking companies may be allowed to hold a higher percentage of shareholding as part of the licensing conditions or as part of the shareholding dilution plan submitted by the bank and approved by the RBI with such conditions as deemed fit.
2. Higher shareholding may be permitted by the RBI on a case-to-case basis under certain circumstances such as relinquishment by existing promoters, reconstruction/restructuring of banks, among others.
• No shareholder in a banking company can exercise voting rights on poll in excess of 26% of total voting rights of all the shareholders of the banking company.
• Acquisition of voting rights or shares in excess of 25% shares or voting rights in a listed entity may also trigger an open offer (for at least a further 26% of the shares in the bank) under the Indian takeover regulations. 

Foreign Banks (Operating Through a branch in India)

There are no specific requirement relating to change in shareholding of a foreign bank operating through a branch in India. However, this may be subject to a condition in its licence. 

The corporate governance requirements for banks are primarily provided under: 

• the Companies Act 2013, which lays down several corporate governance norms (ie, disclosure requirements, composition of board of directors, setting up of audit committee, remuneration committee); 
• the SEBI regulations (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “LODR Regulations”): if a banking company is listed, then the LODR regulations are applicable, which lay down requirements relating to disclosure, director appointments, shareholder protection – under the LODR, a listed entity is required to make timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance of the listed entity;
• the RBI guidelines relating to “fit and proper” criteria for directors, compliance function in banks, prudential norms, among others; and 
• the standards and codes prescribed by the Indian Banks Association. 

These laws, regulations and guidelines mainly cover issues such as the following. 

• Board of director related requirements such as composition, fit and proper criteria, remuneration, etc. For example, the RBI notification on “Corporate Governance in Banks – Appointment of Directors and Constitution of Committees of the Board”, dated 26 April 2021 (Corporate Governance Notification) (applicable to private sector banks and wholly owned subsidiaries of foreign banks) mandates that the chair of the board should be an independent director. It is required that the quorum of the board meetings should be one-third of the total strength of the board or three directors, whichever is higher.
• Requirements relating to the different committees of the board of directors that are required to be constituted. For example, under the Corporate Governance Notification, the following committees of the board of directors are required to be constituted:
1. Audit Committee;
2. Risk Management Committee; and 
3. Nomination and Remuneration Committee.
• Additional committees such as the Corporate Social Responsibility Committee may need to be formed in accordance with the provisions of Companies Act, 2013.
• Requirements relating to diversified ownership of private banks, as discussed in question 2. Authorisation, and ESG-related frameworks. 

Key requirements applicable to registration and oversight of senior management of banks are under the BRA include the following.

• No less than 51% of the total number of members of the board of directors of a bank should consist of persons who have special knowledge or practical experience in respect of one or more of the following matters: accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, small-scale industry, any other matter the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the banking company. Moreover, at least two must have special knowledge in agriculture and rural economy, co-operation or small-scale industry.

• No director of a banking company, other than its chair or whole-time director, can hold office continuously for a period exceeding eight years.
• Every bank should have one of its directors, who may be appointed on a whole-time or a part-time basis, as chair of its board of directors, and where they are appointed on a whole-time basis, as chair of their board of directors, they are entrusted with the management of the whole of the affairs of the banking company, subject to the superintendence, control and direction of the board.
• Not less than 51% of the total number of members of the board of directors of a bank may consist of persons who shall not (i) have a substantial interest in, or be connected with (as an employee, manager or managing agent) any company or firm carrying on trade, commerce or industry which is not a small-scale industrial concern; or (ii) be proprietors of any trading, commercial or industrial concern.
• A bank cannot have a director that is a director of another bank, unless the director is appointed by the RBI. A bank cannot have more than three directors who are directors of companies which are together entitled to exercise voting rights exceeding 20% of the total voting rights of the bank’s shareholders.

The BRA prohibits employment of any person whose remuneration or part of whose remuneration takes the form of commission or a share in the profits of the company, or whose remuneration is, in the opinion of the RBI, excessive. Under the BRA, the remuneration of a chair, a managing or whole-time director, manager or CEO and any amendment thereto requires prior approval of the RBI.

RBI “Guidelines on Compensation of Whole Time Directors/Chief Executive Officers/Material Risk Takers and Control Function staff, 2019” (the “Compensation Guidelines”) also govern the remuneration of directors and bank executives. These apply to private and foreign banks operating in India. 

The Compensation Guidelines have adopted the Financial Stability Board Principles for Sound Compensation. Key requirements under these guidelines are set out below.

• Banks should formulate and adopt a comprehensive compensation policy covering all their employees. This policy must cover aspects such as fixed pay, benefits, bonuses, guaranteed pay, severance packages, stocks, pension plans and gratuities.
• Board of directors should set up a “nomination and remuneration committee” to oversee the framing, review and implementation of the bank’s compensation policy.
• For whole-time directors, CEOs and material risk-takers, banks should ensure compensation is adjusted for all types of risk. The Compensation Guidelines set out the compensation structure for full-time directors/CEOs/material risk-takers with the following components: fixed pay, variable pay. 
• Members of staff engaged in financial and risk control should be compensated independently of the business areas they oversee, and commensurate to their key role in the bank. 
• Foreign banks operating in India under branch mode must submit a declaration to the RBI annually from their head office that their compensation structure in India complies with Financial Stability Board principles and standards.
• Banks’ compensation policies are subject to supervisory oversight including review under Basel framework as per the Compensation Guidelines. Deficiencies observed has the effect of increasing the risk profile of the bank, consequences of which may include a requirement of raising additional capital if the deficiencies are very significant.

In India, the Prevention of Money-Laundering Act, 2002 (PMLA) provides the legal framework for anti-money laundering and countering financing of terrorism related requirements. Under the PMLA, banks are required to follow customer identification procedures and monitor their transactions. The RBI has issued Know Your Customer Directions, 2016 (the “KYC Directions”), which lay down the AML/CFT requirements for banks. 

Some of the key requirements relating to anti-money laundering and counter-terrorist financing requirements under the KYC Directions are as follows.

• Each bank should have a KYC policy approved by its board. The KYC policy needs to include the following: customer acceptance policy, risk management, customer identification procedures and monitoring of transactions.
• Every bank which is part of a group, needs to implement group-wide programmes against money laundering and terror financing, including group-wide policies for sharing information required for the purposes of client due diligence and money laundering and terror finance risk management; such programmes need to include adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.
• Banks policy should provide a bulwark against threats arising from money laundering, terrorist financing, proliferation financing and other related risks. Banks may also consider adoption of best international practices taking into account the FATF standards and FATF guidance notes on managing risks better.
• Banks also need to carry out “Money Laundering and Terrorist Financing Risk Assessment” exercise periodically to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk for clients, countries or geographic areas, products etc.
• The KYC Directions also lay down detailed requirements regarding customer acceptance policy, risk management, customer due diligence procedure, record management, among others.

The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI administers the Deposit Insurance Scheme. Deposits such as savings, fixed, current, recurring, at all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC. However, the following types of deposits are not insured: 

• deposits of foreign governments;
• deposits of central/state governments;
• inter-bank deposits;
• deposits of the State Land Development Banks with the State co-operative bank;
• any amount due on account of and deposit received outside India; and
• any amount, which has been specifically exempted by the corporation with the previous approval of the RBI.

Each depositor in a bank is insured up to a maximum of INR0.5 million for both principal and interest amount as on the date of liquidation/cancellation of bank՚s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force. The premium for the deposit insurance is borne entirely by the insured bank.

The RBI’s KYC Directions lay down the bank secrecy requirements in India. The key requirements under the KYC Directions relating to bank secrecy are as follows.

• Banks are required to maintain secrecy regarding the customer information arising out of the contractual relationship between the bank and the customer. 
• Information collected from customers for opening of account is required to be treated as confidential. These details cannot be divulged for the purpose of cross selling, or for any other purpose without the express permission of the customer.
• When considering requests from the government and other agencies for data, the banks need to satisfy themselves that the information being sought is not of such a nature that will violate the provisions of the laws relating to secrecy in the transactions. 
• The principal exceptions permitting disclosure are:
1. where disclosure is under compulsion of law;
2. where there is a duty to the public to disclose; 
3. the interest of the bank requires disclosure; and
4. where the disclosure is made with the express or implied consent of the customer.
• In August 2023, the (Indian) Digital Personal Data Protection Act, 2023 (the “DPDP Act”) was passed by the Indian Parliament (but has not yet come into effect). The DPDP Act provides a comprehensive framework for processing of digital personal data in a manner that recognises the right of individuals to protect their personal data and the need to process such personal data for lawful purposes. Once the DPDP Act comes into effect, banks will need to comply with the requirements relating to notice to be given to individual to whom the personal data relates to, consent for data processing, among others.

India adopted the Basel III Capital Regulations in 2013, which were fully implemented on 1 October 2021, as noted under RBI’s Master Circular on Basel III Capital Regulations dated 12 May 2023. The capital adequacy framework applies to banks at both a consolidated and a standalone level. 

Banks are required to maintain a minimum Pillar 1 capital to risk-weighted assets ratio (CRAR) (a ratio of the bank’s capital in relation to its risk-weighted assets) of 9% on an on-going basis (other than capital conservation buffer and countercyclical capital buffer, etc). 

Every bank needs to maintain, by way of a cash reserve, a sum equivalent to a certain percentage of the total of its Net Demand and Time Liabilities (NDTL) in India. The NDTL of a bank includes (i) liabilities towards the banking system net of assets with the banking system (as defined in the BRA and the RBI Act); and (ii) liabilities towards others in the form of demand and time deposits or borrowings or other miscellaneous items of liabilities. Currently, banks need to maintain a cash reserve ratio (CRR) of 4.50% of the bank’s total NDTL as on the last Friday of the second preceding fortnight. Every scheduled bank needs to maintain minimum CRR of not less than 90% of the required CRR on all days during the reporting fortnight, in such a manner that the average of CRR maintained daily shall not be less than the CRR prescribed by the RBI. 

Every scheduled commercial is required to maintain assets (such as unencumbered government securities, cash and gold) the value of which shall not, at the close of business on any day, be less than 18% of their total net demand and time liabilities in India as on the last Friday of the second preceding fortnight in accordance with the method of valuation specified by RBI from time to time.

Banks are also required to maintain a liquidity coverage ratio (LCR) of 100%, which requires banks to maintain High Quality Liquid Assets (HQLAs) to meet 30 days net outgo under stressed conditions.

The minimum leverage ratio for domestic systemically important banks is 4% and 3.5% for other banks. 

Regulatory Framework for Resolution of Insolvency of Banks

There is no specialised resolution regime for insolvency of financial firms in India. The BRA lays down the following modes of resolution for failing banks.

• The RBI directed scheme of reconstruction or amalgamation under Section 45 of BRA: this is the most commonly used mechanism for bank resolution. Under this provision, the RBI may apply to the central government for an order of moratorium in respect of the bank. Following which, the RBI prepares a scheme for the reconstruction of the bank, or for the amalgamation of the bank with any other bank. This scheme is then placed before the central government for its sanction. Once sanctioned, it is binding on all the members, depositors and other creditors and employees of each of the banks. 
• Voluntary amalgamation under Section 44A of BRA: this allows banks to voluntary amalgamate with another bank, with the approval of their respective shareholders. If such scheme is approved by the requisite majority of the banks’ shareholders, it is submitted to RBI for its sanction. 
• Court-ordered winding-up under Section 38 of BRA: the RBI may apply to the High Court to wind up banks in certain circumstances (ie, the continuance of the banking company is prejudicial to the interests of its depositors). 

Yes Bank Limited’s scheme of reconstruction in 2020 provides an example of resolution of a bank through a draft RBI scheme of reconstruction under Section 45 of BRA. 

The RBI had also introduced a “Prompt Corrective Action (PCA) Framework for Scheduled Commercial Banks”, which is governed by its notification dated 2 November 2021, with the objective of enabling supervisory intervention at appropriate time and requiring the bank to initiate and implement remedial measures in a timely manner, so as to restore its financial health. The corrective action taken may include restriction on dividend distribution/remittance of profits, promoters to bring in capital, restriction on branch expansion, restrictions on capital expenditure, other than for technological upgradation within board approved limits, special supervisory actions, strategy related, governance related, capital related, credit risk-related, market risk-related, HR-related, profitability-related, operations/business-related or any other specific action that the RBI may deem fit considering the specific circumstances of a bank. 

Importantly, in November 2019, the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (the “FSP Rules”) were notified under the Insolvency and Bankruptcy Code, 2016 (IBC). These rules expanded the gamut of IBC from corporate debtors to insolvency and liquidation of financial service providers. Currently, the FSP Rules are applicable to systemically important non-banking finance companies having an asset size of INR5 billion or more.

Key upcoming regulatory developments that may be introduced in the near future and which may have an impact on banks in India are as follows.

• Introduction of the Framework for “Securitisation of Stressed Assets Framework”: in January 2023, the RBI released a discussion paper on introduction of a framework for securitisation of stressed assets (in addition to the existing route of securitisation via the asset reconstruction companies route).
• Introduction of the “Omnibus Framework for recognising Self-Regulatory Organisations for its Regulated Entities”: in December 2023, the RBI released a draft omnibus framework for recognising self-regulatory organisations (SROs) for its regulated entities with broad parameters for SROs (ie, objectives, responsibilities, eligibility criteria, governance standards, application process and other conditions for grant of recognition to the SRO).
• Introduction of a revised framework for “wilful defaulters”: in September 2023, the RBI released a “Draft Master Direction on Treatment of Wilful Defaulters and Large Defaulters” with a revised framework to tighten the wilful defaulter regime after consideration of representations/suggestions received from banks and other stakeholders on the existing directions. The draft master direction proposes a broader definition for wilful default and has also expanded the scope of regulated entities to whom these directions apply.
• ESG-related guidelines: in July, 2022, the RBI released a “Discussion Paper on Climate Risk and Sustainable Finance” for public comments, which broadly discussed climaterelated risk and its unique characteristics as applicable to banks, appropriate governance, strategy and risk management structure to address climate change risks, how forward-looking tools like stress testing and climate scenario analysis can be used to identify vulnerabilities, climate risk-related financial disclosure and reporting for banks. Following the analysis of feedback received on this discussion paper, in February 2023, the RBI announced that guidelines for (i) the framework for the acceptance of green deposits; (ii) the disclosure framework on climate-related financial risks, and (iii) the guidance on climate scenario analysis and stress testing will be released in a phased manner. While the framework for green deposits was released in April 2023, guidelines relating to disclosure frameworks and climate/scenario analysis/stress testing are also expected to be released in due course. 
• Introduction of “Guidelines on Minimum Capital Requirements for Market Risk – under Basel III”: in February, 2023, the RBI released the “Draft Guidelines on Minimum Capital Requirements for Market Risk”, which provides guidelines relating to instruments to be included in the trading book (which are subject to market risk capital requirements) and those to be included in the banking book (which are subject to credit risk capital requirements), definition and application of market risk, and calculation of risk-weighted assets for market risk. These Guidelines are expected to come into effect on 1 April 2024. 

The above proposals are currently in the consultation stage (ie, public comments have been sought on these proposals) and are expected to be released soon.

In April 2023, the RBI released a framework for the acceptance of green deposits applicable to banks with the objective of encouraging banks to offer green deposits to customers and help increase credit flow to green projects.

Some of the key features of the green deposit framework include the following. 

• Banks needs to adopt board-approved policy on green deposits which lays down details of issuance and allocation of green deposits.
• Green deposits can be issued as cumulative/non-cumulative deposits, which may be renewed or withdrawn at the option of the depositor on its maturity. Green deposits need to be denominated in Indian rupees only.
• A financing framework needs to be adopted by banks which covers projects which are eligible for being financed from green deposits, process for evaluation and selection of eligible projects, allocation of green deposit proceeds and its third-party verification, among others. 
• Allocation of proceeds from green deposits needs to be towards the sectors listed in the RBI framework, which includes renewable energy, energy sufficiency, clean transportation, among others. Exclusions from eligible projects includes projects involving new or existing extraction, production and distribution of fossil fuels or where the core energy source is fossil-fuel based, nuclear power generation, direct waste incineration, among others.
• Allocation of funds from green deposits needs to be subject to a third-party verification/assurance on an annual basis. The third-party verification report must verify that green deposits proceeds were used towards eligible green activities/projects. 
• Banks need to assess the impact of the funds lent towards green finance activities/projects through an impact assessment report on an annual basis in the manner set out in the RBI framework.
• A review report (containing details regarding the amount raised under green deposits during the previous financial year, list of green activities/projects to which proceeds have been allocated, the amounts allocated to the eligible green activities/projects, a copy of the third-party verification/assurance report and the impact assessment report, among others) needs to be placed by the bank before its board of directors within three months of the end of the financial year.