Public sector banks are preparing to approach the Reserve Bank of India seeking modifications to climate finance guidelines, according to reports from The Economic Times. The banks argue that the current framework lacks sufficient incentives for both banks and customers to adopt green deposits. As reported by a senior bank executive, the Indian Banks' Association (IBA) is likely to submit formal recommendations to the RBI by the end of March 2026.
According to The Economic Times report, banks are making specific demands to enhance the green deposit framework. The primary request involves reducing the cash reserve ratio (CRR) for green deposits, which is currently mandated at 3% of total deposits. Additionally, banks are seeking greater clarity on climate finance taxonomy, which remains undefined under the current guidelines. A lower CRR would improve liquidity for banks while encouraging green deposit adoption.
The Reserve Bank of India's Climate Finance and Management of Climate Change Risks Directions, issued in December 2025, require bank boards to approve comprehensive policies on green deposits and detailed financing frameworks. As reported by The Economic Times, lenders have indicated that under the current green deposit framework, uptake has been limited due to a lack of incentives for both banks and customers. The guidelines also mandate enhanced depositor protection and transparency through reporting requirements.
The banks are seeking a more comprehensive definition of climate finance taxonomy that aligns with international regulatory standards. According to The Economic Times report, one bank executive stated the need for a framework aligned with regulations followed in other jurisdictions like Singapore. The government released a draft climate finance taxonomy in May 2025, which classified economic activities as 'green' or climate-aligned to mobilize investments for the country's net zero by 2070 vision. Finance Minister Nirmala Sitharaman had announced this taxonomy in her 2024-25 budget speech to enhance capital availability for climate adaptation and mitigation.