IFSCA Guidance Framework on Sustainable Deposits & Sustainable Lending: A Practical Roadmap for IFSC Entities

Sustainable Finance in India & GIFT IFSC: Context and Regulatory Imperative

Sustainable finance has moved decisively from being a voluntary, reputation-driven initiative to a structured regulatory priority across global financial markets. Environmental, Social and Governance (ESG) considerations are now being embedded into lending, investment, and deposit frameworks to channel capital towards long-term, resilient economic activity. This shift reflects a recognition that climate risks, social inequalities, and governance failures translate directly into financial risks.

In India, sustainable finance has gained momentum through enhanced ESG disclosures, the introduction of sovereign green bonds, and growing investor demand for green and sustainability-linked instruments. Regulatory bodies such as SEBI and the Reserve Bank of India have laid the foundation for transparency, risk management, and capital mobilisation aligned with sustainability objectives.

Against this backdrop, GIFT City IFSC has emerged as a strategic platform for cross-border sustainable finance. With its international orientation, regulatory flexibility, and growing ecosystem of banks, funds, and financial intermediaries, IFSC is well-positioned to act as a gateway for global ESG capital flows into India and emerging markets.

Recognising this opportunity, the International Financial Services Centres Authority (IFSCA) has issued a revised Guidance Framework on Sustainable Deposits and Sustainable Lending and Investments, superseding the earlier 2022 guidance. The revised framework significantly broadens the scope—from lending alone to deposits and investments—while aligning IFSC practices with international standards. The framework is not merely a compliance document; it is a strategic instrument designed to institutionalise sustainable finance within the IFSC ecosystem and enhance its global credibility.

Scope and Applicability of the IFSCA Framework

The framework applies primarily to IFSC Banking Units (IBUs) and, on a voluntary basis, to Finance Companies and Finance Units (FC/FUs) undertaking core financial activities in IFSC.

While IBUs are mandatorily covered across lending, deposits, and investments, FC/FUs—given their inability to accept deposits—are encouraged to adopt sustainable lending and investment practices in line with the framework. This balanced approach ensures regulatory proportionality while nudging the broader ecosystem toward sustainability.

Importantly, the new framework supersedes the 2022 guidance on sustainable and sustainability-linked lending. It reflects stakeholder feedback, evolving global best practices, and the growing scale of sustainable finance activity in IFSC. Entities already operational are required to comply within defined timelines, while newly licensed IBUs will be subject to the framework from the financial year following commencement of operations.

Guidelines on Sustainable Lending

Green, Social and Sustainability-Linked Lending

At the core of the framework lies a structured definition of sustainable lending, which includes green lending, social lending, and sustainability-linked lending.

Green and social lending are use-of-proceeds-based instruments, where loan funds must be applied exclusively to eligible green or social projects. These may include renewable energy, energy efficiency, clean transportation, sustainable water management, affordable housing, healthcare, education, and financial inclusion initiatives.

Sustainability-linked lending, by contrast, is performance-based. Instead of restricting the use of proceeds, such loans incentivise borrowers to achieve predefined Sustainability Performance Targets (SPTs), measured through credible and material Key Performance Indicators (KPIs). Financial characteristics—such as interest rate adjustments—are directly linked to performance against these targets, thereby embedding sustainability outcomes into the borrower’s overall business strategy.

IFSCA mandates that such lending be aligned with internationally recognised principles, including those issued by the Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA), and Loan Syndication and Trading Association (LSTA). Each IBU or FC/FU must adopt a board-approved policy covering borrower assessment, project evaluation, monitoring mechanisms, reporting standards, and periodic review to ensure continued alignment with global norms.

Sustainable Trade Finance

The framework also formally recognises sustainable trade finance as a distinct category. With global supply chains under increasing scrutiny for environmental and social impact, trade finance has become a powerful lever for sustainability.

IFSCA aligns sustainable trade finance with the International Chamber of Commerce (ICC) Principles for Sustainable Trade Finance, issued in October 2024. Entities offering green trade finance must adopt a dedicated policy incorporating these principles, covering eligibility criteria, risk assessment, monitoring, and reporting. For trade-focused IBUs, this presents an opportunity to integrate sustainability into working capital and supply chain financing while meeting global counterpart expectations.

Sustainable Deposits: A New Product Framework for IBUs

One of the most significant innovations in the revised framework is the introduction of sustainable deposits as a distinct product offering for IBUs.

Sustainable deposits are term deposits raised specifically to finance sustainable lending and investments. Funds mobilised under this category must be deployed towards eligible green or social loans, sustainable trade finance, ESG-labelled debt securities, transition bonds, or ESG schemes of IFSC fund management entities.

IFSCA requires IBUs to adopt a board-approved policy governing the acceptance, allocation, and monitoring of sustainable deposits. The policy must clearly outline eligible uses of proceeds, internal controls, and reporting mechanisms. Pending deployment, funds may be temporarily invested in liquid instruments for up to one year, subject to policy conditions.

This framework enables IBUs to attract sustainability-focused depositors—both institutional and corporate—while maintaining transparency and credibility. It also aligns IFSC practices with global trends, where sustainable deposits are increasingly used as a funding tool for green finance portfolios.

Guidelines on Sustainable Investments

Beyond lending and deposits, the framework extends to sustainable investments, recognising that capital markets and asset allocation play a critical role in advancing sustainability objectives.

IBUs and FC/FUs are required to adopt a policy for investing in sustainable financial products, which may include:

• ESG-labelled debt securities listed in IFSC
• Transition bonds issued in line with the IFSCA Transition Finance Framework
• ESG funds or schemes established under IFSCA Fund Management Regulations

The policy must be approved by the board or governing body and should cover investment selection, risk assessment, monitoring, and reporting. Notably, the framework allows investments both within and outside IFSC, provided they meet prescribed standards. This flexibility supports portfolio diversification while maintaining sustainability integrity.

Deployment Targets for IFSC Banking Units

To ensure that sustainable finance objectives translate into measurable outcomes, IFSCA has introduced a minimum deployment target for IBUs.

Each IBU is required to deploy at least 5% of the aggregate loans disbursed and investments made in the immediately preceding financial year towards sustainable lending and/or sustainable investments. The framework specifies phased applicability for existing and newly licensed IBUs, with proportional compliance for the first year where applicable.

In cases where an IBU is unable to meet the target, it must report the shortfall to IFSCA, along with reasons and a corrective action plan. This mechanism balances regulatory discipline with operational flexibility.

Governance, Assurance and Disclosure Framework

Strong governance is a cornerstone of the framework. IFSCA mandates multiple layers of oversight to ensure credibility and prevent greenwashing.

Entities must arrange for an external review of their sustainable lending and investment policies to confirm alignment with applicable international standards. Where a parent entity’s policy is adopted and already externally reviewed, a separate review may not be required.

Additionally, third-party verification or assurance is required annually for the allocation of funds raised through sustainable deposits and for sustainable lending and investments. This assurance must cover use of proceeds, internal controls, and compliance with policy requirements.

In this context, regulated ESG ratings and data providers play an important role in supporting verification, impact assessment, and disclosures within IFSC.

Entities are also expected to undertake impact assessment—quantifying environmental or social outcomes wherever feasible. Where quantification is not possible, entities must disclose challenges and outline time-bound plans to address them.

Comprehensive disclosures on policies, assurance reports, and impact assessments must be made available on the entity’s website, reinforcing transparency and stakeholder confidence.

Key Takeaways for IFSC Entities and Finance Leaders

The IFSCA Guidance Framework represents a decisive shift from ad-hoc ESG initiatives to a structured, accountable sustainable finance regime within IFSC. For boards, CFOs, and compliance teams, the framework necessitates early action—policy formulation, system readiness, and assurance planning.

Entities that move proactively will not only meet regulatory expectations but also gain strategic advantage by accessing global ESG capital, strengthening counterpart trust, and positioning themselves as credible participants in the international sustainable finance ecosystem.

In this sense, the framework is not merely about compliance—it is about shaping the future role of GIFT IFSC as a globally recognised hub for sustainable capital.