What is Green Deposit? Why did RBI Issued Guidelines for it? Know the Details

 Amid the fear of the drastic effects of climate change, RBI issued a detailed framework for various financial institutions to accept green deposits.

 The Guideline

 

On Tuesday (April 11, 2023) RBI took a step forward towards green finance by issuing a framework for banks, deposit taking Non-Banking Finance Companies including Housing Finance Companies and small finance banks to accept green deposits.

 

Climate Change has been recognised as one of the most critical challenges faced by the global society and economy in the 21st century. 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 attraction in India. RBI said, while issuing the guidelines, joining in the global effort to combat climate change.

 

Effect

 

This new framework will have five prong effects in the country. RBI designed these guidelines to encourage regulated entities to offer green deposits to customers, protect depositors' interests, aid customers in achieving their sustainability agenda, address greenwashing concerns, and assist in augmenting the flow of credit to green activities/ projects.

 

While the framework will come into effect from June 1, 2023, some regulated entities have already been providing green deposits for the finance of green activities and projects.

 

Green Deposits

 

Green Deposits, defined in the RBI guidelines, is an interest bearing deposits, received for a fixed period by financial institutions. Its proceeds are earmarked to be allocated toward green finance. These deposits can be cumulative or non-cumulative withdrawable or renewable at the time of maturity at the depositor's option. The deposits will be denominated in INR.

 

Projects

 

The proceeds of these will be based on Official Indian Green Taxonomy awaiting finalisation. For the interim moment, the proceeds of deposits are directed to be allocated towards green activities/projects encouraging energy efficiency in free utilisation, reduction of carbon emission and greenhouse gases, promotion of climate resilience and/or adaptation, and value and improvement of natural ecosystems and biodiversity.

 

Nuclear Power generation; direct waste incineration; alcohol, weapons, tobacco, gaming, or palm oil industries; landfill projects; hydropower plants larger than 25 MW; renewable energy projects generating energy from biomass using feedstock originating from protected areas; projects involving new or existing extraction, production and distribution of fossil fuels, including improvements and upgrades; or where the core energy source is based on fossil-fuel, are some of the projects that are excluded under the RBI framework.

 

NBFCs and Banks are directed to present a detailed policy on this by getting approval from the board.

 

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