In a sign that India’s financial institutions are getting serious about contributing to the country’s energy transition goals, public sector bank Canara Bank has issued a Green Deposit Policy and Lending Framework designed for green initiatives, including solar and wind energy projects.

The framework is on the lines of the Reserve Bank of India’s (RBI) guidance document for financial institutions to offer ‘green deposits’ to customers, address ‘greenwashing’ concerns, and help augment the flow of credit to green activities and projects. The framework, which applies to all regulated financial entities, was issued in April and came into force in June this year.

In its green deposit policy, Canara Bank will offer specialized green deposit accounts, which may be in the form of term or recurring deposits. Those opting to open such accounts will be awarded an appreciation letter.

Under the framework, such green deposits will be further deployed for “green finance” as per the green deposit lending framework guidelines.  The deposits will be deployed in green activities and projects aimed at encouraging energy efficiency in resource utilization and reducing carbon emissions and greenhouse gases.

The bank’s policy framework also addresses issues of ‘greenwashing,’ a term to refer to organizations making unsubstantiated claims about their sustainable and environmentally-friendly products and services.

The framework lists solar, wind, biomass, and hydropower energy projects that integrate energy generation and storage as green projects. Other such initiatives include the design and construction of energy-efficient and energy-saving systems and installations in buildings and supporting the construction of new low-carbon buildings as well as energy-efficiency retrofits to existing buildings, projects to reduce electricity grid losses, and electric vehicles.

Projects involving new or existing extraction, production, and distribution of fossil fuels, including improvements and upgrades, or where the core energy source is fossil-fuel based, are not eligible for green financing. Hydropower plants larger than 25 MW and nuclear projects are also excluded.

The bank will furnish the details of the total clean energy capacity installed, energy generated, greenhouse gas emissions avoided annually, new clean infrastructure built, and number of electric vehicles produced.

The allocation of funds raised through green deposits by the bank will be subject to an independent annual third-party verification.

More such banks coming out with policies to accept green deposits could catalyze lending to India’s renewable energy sector, which requires an investment of trillions of U.S. dollars if India has to realize its net zero goals by 2070.

Recently, a parliamentary committee asked the government to explore the possibility of prescribing Renewable Finance Obligations along the lines of Renewable Purchase Obligations for banks and financial institutions to make them invest a specific percentage of their overall investment in the Indian renewable energy sector.