RBI Introduces New Framework For Green Deposits

The Reserve Bank of India (RBI) said in a notification issued on Tuesday that it has put in place a framework for accepting green deposits. The new norms will come into effect from June 1. The framework applies to banks, small finance banks and non-banking financial companies that take deposits.Encourage regulated institutions, offer green deposits to consumers, protect investors’ interests, help consumers achieve and support their sustainability agenda, address greenwashing concerns, increase the flow of credit to green activities, encourage lenders It was introduced with objectives. The new framework comes at a time when environmental, social and norms are in focus in India.

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Currently, various banks like Federal Bank, IndusInd Bank, DBS Bank India accept green deposits. Earlier in February, Reserve Bank Governor Shaktikanta Das had said the central bank would issue guidelines to regulated entities to boost green finance and mitigate climate-related financial risks.

As per RBI’s framework, lenders are allowed to provide green deposits on a cumulative or non-cumulative basis, which can be renewed or withdrawn by the investor on maturity. On expiry, they can be renewed or withdrawn. Green Deposits are recorded in Indian Rupees only. All conditions applicable to other public deposits will also be applicable to green deposits, RBI said.

A regulated entity (RE) shall establish a comprehensive board-approved policy on green deposits invested therein. The framework will detail all aspects of issuing and sanctioning green investments.

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Regulated institutions shall establish a board-approved financial framework (FF) for effective allocation of green deposits. The allocation of funds raised from green deposits will be based on the official Indian Green Taxonomy. However, it is not finalized yet. Earnings from green investments will be used for various initiatives like renewable energy, energy efficiency, clean transportation etc. It is prohibited to use funds raised through green deposit for nuclear power generation, direct waste management, landfill projects and hydropower plants above 25 MW.
The allocation of funds raised by regulated entities through green deposit in a financial year is subject to an independent third party verification or assurance on an annual basis.

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