Banks and financial institutions adopted the Reserve Bank of India (RBI)’s new green deposit framework on June 1. Under the new framework, banks and NBFCs will now be required to disclose how and where they are investing the money they have received from the green deposits.
The RBI floated the framework for the same and how it will apply to all scheduled commercial banks in April of this year. The action has been taken to increase transparency and guarantee that the funds are used for the intended purpose. Banks that accept green deposits must inform the central bank of the investments they are making per a notification from the central bank released in April of this year.
In its most basic form, a green deposit is a fixed-term deposit for those who want to fund ecologically responsible projects. The green deposit pays interest to its depositors and has a defined duration, just like a standard FD plan. The money a bank receives from depositors is set aside for green financing.
Renewable energy, waste management, clean transport, energy efficiency, and afforestation were among the industries the RBI previously recognized as sustainable and qualified to receive green deposits. But, according to the RBI note, the financial sector can be crucial in mobilizing resources and allocating them to green initiatives and activities, as in India, green finance is also steadily gaining ground.
The central bank’s notification stated that the framework’s goals and justification were to “encourage Regulated Entities (Res) to offer green deposits to customers, protect the interest of the depositors, assist customers in achieving their sustainability agendas, address concerns regarding greenwashing, and assist in enhancing the flow of credit to green activities/projects.”
The bank can utilize the money from green deposits to provide loans for initiatives that advance the UN’s Sustainable Development Goals. Companies committed to environmental protection can access funds banks and lending organizations raise and set aside through green deposits.
The projects/activities on the list include renewable energy, energy efficiency, clean transport, coping with climate change, sustainable water and waste management, and green buildings. REs could use the money from green deposits for these projects/activities. The RBI further stated that the official Indian green taxonomy should be used to allocate the revenues received from green deposits.
The initiatives, according to RBI, must stimulate resource utilization that is energy efficient, lower carbon emissions and greenhouse gas emissions, increase climate resilience and adaptation, and value and enhance biodiversity and natural ecosystems.
The green deposits could be renewed or removed at maturity at the depositor’s discretion. RBI has also mentioned a list of “exclusions” for REs. This covers initiatives using new or ongoing fossil fuel extraction, processing, distribution, nuclear energy production, and direct waste incineration.
Various banks and financial organizations already offer green deposit programs, including Federal Bank, IndusInd Bank, HSBC, Union Bank, DBS Bank, and HDFC Bank. Green deposits are provided globally by Citibank and HSBC. They charge slightly less for these deposits (0.25 to 0.75%).