The Green Deposit Framework
- May 26, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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 On maturity, the green deposits would be renewed or withdrawn at the choice of the depositor.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. |