With the aim of promoting green finance, the Reserve Bank of India has introduced a framework for green deposits in the country. The framework essentially focuses on encouraging regulated entities to offer customers green deposits and to elevate the credit flow to green projects and activities. The framework, which will apply to all scheduled commercial banks and deposit-taking non-banking finance companies, will be effective from June 1, 2023.
Green deposits refer to a tenure-based and interest-bearing fixed deposit where the deposited amount is used for environmental activities like green building projects, renewable energy projects, waste management projects etc. While the tenure, size, interest rates, and related terms and conditions will be defined by the RBI’s Master Directions, regulated entities will be required to establish a policy on green deposits and related aspects approved by a board.
When it comes to allocating the deposits to eligible green projects where the deposited money will be invested, the regulated entities will also be required to implement a financing framework approved by a board. These allocations of the green deposits are required to be based on the official Indian green taxonomy including projects involving pollution prevention, sustainable water management, climate change adaption, energy efficiency projects and much more. The entities are required to make available an Impact Assessment Report on their website, helping depositors assess the actual impact of the green finance activities. Other details like the amount raised, allocation of proceeds and results of third-party verification must be disclosed in annual financial statements.
RBI’s green deposit framework comes at a time when environmentally-conscious activities need to go beyond everyday activities and extend to areas of financial and economic importance as well. Whilst promoting green deposits, this step from the RBI sits right in with the global mindset turning to a financial future that is also carbon-conscious.
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