RBI?s Green Deposit Framework

RBI’s Green Deposit Framework

News: The Reserve Bank of India (RBI) has announced a new framework to offer green deposits to the customers, aiming at developing a Green Finance Ecosystem (GFS) in India.

 The framework will come into effect from June 1, 2023.
 A green deposit refers to an interest-bearing deposit received by an RE (Regulated Entity) for a fixed period, with the proceeds earmarked for allocation towards green finance.

Rationale of Framework:
 The purpose and rationale for the framework, RBI said is to encourage REs to “offer green deposits to customers, protect interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/projects”.

Key Features:
 The framework is applicable to Scheduled Commercial Banks, including Small Finance Banks, excluding Regional Rural Banks, Local Area Banks and Payments Banks and all deposit-taking Non-Banking Financial Companies (NBFCs), including Housing Finance Companies.
 REs will be required to allocate the proceeds raised through green deposits towards a list of green activities and projects that encourage energy efficiency in resource utilization, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation, and improve natural ecosystems and biodiversity.
 To ensure effective allocation of green deposits, REs must put in place a Board-approved Financing Framework (FF). The green deposits shall be denominated in Indian Rupees only.
 The allocation of funds raised through green deposits by REs during a financial year shall be subject to independent third-party verification/assurance, which shall be done on an annual basis.

What is the list of exclusion for RE?
 It includes projects involving new or existing extraction, production and distribution of fossil fuels; nuclear power generation; and direct waste incineration.
 Banks and NBFCs will have to put in place a comprehensive board-approved policy on green deposits.

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