The Green Deposit Framework

  • May 26, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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The Green Deposit Framework

Subject : Economy

Section: Monetary Policy policy

A green deposit is an interest-bearing instrument received by banks for a fixed period, the proceeds of which are earmarked for green-financing, such as funding of renewable energy projects. The Reserve Bank of India (RBI) in April 2023 issued a framework for banks to accept and promote green deposits. At present banks offering green Housing Development Finance Corp (HDFC), IndusInd Bank, Federal Bank, HSBC and DBS Bank. It is a step towards ESG (Environmental, Social, and Governance) investing.

Some pointers as per the RBI framework:

  • Banks will offer the deposits as cumulative/ non-cumulative deposits. On maturity, the green deposits would be renewed or withdrawn at the choice of the depositor.
  • The green deposits shall be denominated in rupees only.
  • Banks and NBFCs shall put in place a comprehensive board-approved policy on green deposits, laying down all aspects in detail for the issuance and allocation of green deposits.
  • The framework applies to all scheduled commercial banks and small finance banks (except for regional rural banks and local area banks) and non-banking finance companies (including housing finance companies).
  • Both corporate and individual customers can invest in green deposits.
  • Allocation of funds raised through green deposits during a financial year shall be subject to an independent Third-Party Verification (TPV) on an annual basis.

Where can the money be invested:

  • Although banks offer nearly similar interest rates on both green deposits and fixed deposit schemes, the end-use of the funds is different.
  • The differences between use of fixed deposit and green deposit can be seen in table below:
Fixed deposit❖   Lend or invest in even carbon-heavy sectors

❖   Colloquially called ‘Black Deposit’ in contrast to Green deposits.

Green deposits❖   Cannot use proceeds from green deposits for non-environment friendly projects.

❖  Cannot be used for: new or existing extraction, production and distribution of fossil fuels, nuclear power, waste incineration, alcohol, weapons, tobacco, gaming, landfills, and palm oil industries.

❖  Can be used to fund projects in 9 sectors — renewable energy, energy efficiency, clean transportation, climate-change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, management of living natural resources, and biodiversity conservation.

economy The Green Deposit Framework