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 On maturity, the green deposits would be renewed or withdrawn at the choice of the depositor.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.