Public sector banks in India recorded a marked increase in green deposits in fiscal 2026, with State Bank of India raising significant sums via dedicated green deposit products and PSU lenders directing funds into clean transport and renewable energy projects.
DEPOSIT FLOWS AND BANK ACTIVITY
State Bank of India, the country’s largest lender, raised ₹317.39 crore through its green deposit products during the year ended March 2026, and reported outstanding green deposits of ₹218 crore as of March 31, 2026. The lender’s figures were disclosed alongside reporting that other public sector banks also posted increased inflows into green-labelled deposit accounts in FY26, and that the funds were being channelled into projects classified as environmentally sustainable.
PSU banks deployed the raised funds across sectors that included clean transport and renewable energy, according to reporting. These allocations reflected a broader shift in bank funding priorities as lenders sought to meet corporate and retail client demand for green savings products, and to expand financing for projects that contribute to national sustainability targets.
Green deposits, which are ordinary deposit products earmarked for lending to environmentally eligible projects, offered banks an on-balance-sheet way to attract sustainability-focused savings while keeping the liabilities fungible. For banks, labelled deposits provided a visible channel to demonstrate alignment with environmental, social and governance frameworks without creating new onshore funding instruments.
MARKET CONTEXT AND IMPLICATIONS
The jump in green deposits among public sector lenders in FY26 carried multiple implications for the Indian banking system and corporate borrowers. For banks, an increase in labelled green liabilities helped diversify deposit bases and potentially supported the origination of green loans by providing a dedicated funding pool for eligible assets. For borrowers in wind, solar, electric mobility and related equipment sectors, increased bank interest in green lending created additional competition for project finance.
Market participants and sustainability analysts have emphasised that while green deposits can mobilise capital for climate-related projects, they also require robust frameworks for eligibility, monitoring and reporting. Absent consistent third party verification or standardised taxonomies, there is a risk that green-labelled funds may be routed to projects that do not meet international or national definitions of sustainability, creating reputational and regulatory risks for lenders.
Indian regulators and policymakers have in recent years increased scrutiny of environmental disclosures and the integrity of labelled financial products. Banks that expanded green deposit offerings in FY26 entered an environment where investors and corporate clients expect transparency on how funds are deployed and what projects qualify. That pressure has prompted banks to refine internal governance and reporting practices around green liabilities and assets.
For the broader credit market, the rise in green deposits could influence pricing and capital allocation if banks match the labelled liabilities with green loans and securities. Over time, such matched pools can support the growth of dedicated green lending pipelines, which market participants view as important for meeting domestic renewable energy and emissions reduction targets.
Operational challenges remained, including documentation standards, the need for credible project evaluation, and ensuring consistent reporting to stakeholders. Some banks also faced the task of educating retail depositors and corporate treasuries about the nature of green deposits, including any implications for liquidity and returns compared with conventional products.
Bank executives and sustainability officers have in public comments linked product growth to client demand and strategic commitments on climate goals. The FY26 increase in green deposits among public sector banks illustrated how deposit-taking institutions can position themselves as intermediaries in the transition to lower carbon infrastructure while managing balance sheet and reputational considerations.
Sources: The Hindu Business Line Banking