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The Reserve Bank of India (RBI) announced the framework for accepting green deposits.
- The framework will come into effect from June 1.
About Green Deposits
- A green deposit means an interest-bearing deposit, received by the Registered Entities(RE ) for a fixed period, the proceeds of which are earmarked for being allocated towards green finance.
- The investment in this fixed tenure deposit will go towards financing eligible businesses and projects that promote the transition to a low-carbon, climate-resilient, and sustainable economy.
Major Highlights of Recent Framework
- Applicability: It is applicable to Scheduled Commercial Banks including Small Finance Banks excluding Regional Rural Banks, Local Area Banks, and Payments Banks, and all deposit-taking Non-Banking Financial Companies (NBFCs), including Housing Finance Companies.
- Registered Entities(RE ) will be allowed to issue green deposits on a cumulative or non-cumulative basis which could be renewed or withdrawn on maturity by the depositor.
- All conditions applicable to other public deposits will also be applicable to green deposits.
- Allocation of fund
- The allocation of funds raised through green deposits by REs during a financial year shall be subject to an independent Third-Party Verification/Assurance which shall be done on an annual basis.
- The green deposits shall be denominated in Indian Rupees only.
- Usage :
- The proceeds from green deposits will be utilised for various activities like renewable energy, energy efficiency, and clean transportation among others.
- Exclusion
- Some of the sectors which are excluded are nuclear power generation, direct waste incineration, alcohol, weapons, tobacco, gaming, palm oil industries, and hydropower plants larger than 25 MW, among others.
Aims and objectives
- The idea is to foster and develop a green finance ecosystem in the country.
- It aims to encourage regulated entities (REs) to offer green deposits to customers, protect the interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns, and help augment the flow of credit to green activities/projects.
Present status
- Currently, various banks like Federal Bank, IndusInd Bank, and DBS Bank India accept green deposits.
Future Outlook
- Climate change has been recognised as one of the most critical challenges and globally, various efforts have been taken to reduce emissions as well as promote sustainability.
- The financial sector can play a pivotal role in mobilising resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India,
- The allocation of proceeds raised from green deposits should be based on the official Indian green taxonomy.
- The projects must encourage energy efficiency in resource utilisation and improve natural ecosystems and biodiversity.
- Banks and NBFCs will have to put in place a comprehensive board-approved policy on green deposits.
Source:IE
