From June 1, banks and financial companies have adopted the new framework for green deposits issued by the Reserve Bank of India (RBI). Under the new framework, banks and NBFCs will now have to inform how and where they are investing the funds acquired from the green deposits.

The RBI, in April this year, had floated the framework for the same and how will it apply to all scheduled commercial banks. The move has been adopted to enhance transparency and ensure that the money goes to its intended cause.

As per the central bank’s notification, issued in April this year, banks that accept green deposits will have to apprise the central bank about the activities and companies they are investing the funds in.

What is Green Deposit?

In general terms, a green deposit is a fixed-term deposit for those who want to invest in environmentally friendly projects. Just like a regular FD scheme, the green deposit pays interest to its investors and has a fixed term. The proceeds that a bank gets from deposit holders get earmarked for allocation to green finance.

Earlier, the RBI listed some sectors that can be classified as sustainable and thus eligible to receive green deposits, which included renewable energy, waste management, clean transportation, energy efficiency, and afforestation.

“The financial sector can play a pivotal role in mobilising resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India,” the RBI said.

“The purpose and rationale for the framework are to encourage Regulated Entities (Res) to offer green deposits to customers, protect the 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,” the central bank’s notification said.

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Top features of green deposits

> Through green deposits, the bank can use the funds to extend loans for projects that support the United Nations Sustainable Development Goals.

> Companies that have a vision for environment-friendly measures can have access to money that banks and lending institutions raise and earmark through green deposits.

> Renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, and green buildings, are among the list of projects/activities where REs could allocate the proceeds raised through green deposits.

> The registered entities shall issue green deposits as cumulative or non-cumulative deposits.
Further, the RBI said the allocation of proceeds raised from green deposits should be based on the official Indian green taxonomy.

> The projects, according to RBI, must encourage energy efficiency in resource utilisation, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation and value and improve natural ecosystems and biodiversity.

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

> RBI has also mentioned a list of ‘exclusions’ for REs. This includes projects involving new or existing extraction, production and distribution of fossil fuels; nuclear power generation; and direct waste incineration.

Banks offering green deposit schemes

A number of banks and financial institutions are already offering green deposit schemes, such as Federal Bank, IndusInd Bank, HSBC, Union Bank, DBS Bank, HDFC Bank. Citibank and HSBC globally offer green deposits. They price these deposits at a slightly lower rate (0.25-0.75 per cent).

HDFC Limited’s Green and Sustainable Deposit is offering an interest rate of 7.2 per cent for a tenure of 61 to 120 months and 7.3 per cent per annum (annual income plan) for a tenure of 36 to 60 months. The interest rates are for deposits up to Rs 2 crore. For senior citizens, there is an additional rate of 0.25 per cent for all deposits up to Rs 2 crore.

(With agency inputs)

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Basudha Das

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