Framework for Acceptance of Green Deposits

News Highlight

RBI issues a framework for acceptance of green deposits by banks and NBFCs.

Key Takeaway

• The Reserve Bank of India provided specific rules for banks to accept ‘green deposits’.
• NBFCs which funds could be utilised to finance operations like renewable energy, green transportation, and green construction.
• Climate change has been identified as one of the most pressing global concerns.
• Several initiatives have been launched to reduce emissions and improve sustainability.
• The financial sector can be critical in mobilising resources and allocating them to green activities/projects. 
• Green finance is gradually gaining popularity in India, according to the RBI.
• It recently provided a framework for regulated firms to accept green deposits.

Framework for Acceptance of Green Deposits of Regulated Entities

• About
  • It is intended to encourage regulated entities to;
    • Offer green deposits to customers
    • Protect the interest of the depositors
    • Aid customers in achieving their sustainability agenda
    • Address greenwashing concerns
    • Help augment the flow of credit to green activities/projects.
  • It will apply to all scheduled commercial banks.
  • It includes minor finance banks and deposit-taking non-banking finance organisations like mortgage lenders.
  • The framework will take effect on June 1, 2023.
• Key features of the framework
  • The entities will issue green deposits as either cumulative or non-cumulative deposits.
  • They can be renewed or removed when they reach maturity.
  • Green deposits will only be accepted in Indian rupees.
  • Green deposits will be subject to the same conditions as other public deposits.
  • The official Indian green taxonomy, which has yet to be developed, would be used to allocate monies raised from green deposits.
  • As a stopgap measure, REs will be forced to allocate earnings from green deposits to categories such as;
    • Renewable energy
    • Energy efficiency,
    • Clean transportation
    • Sustainable water
    • Waste management
  • Nuclear power generation, direct trash incineration, landfill projects, and hydropower plants larger than 25 MW have prohibited uses of green deposit monies.
  • The allocation of monies earned through green deposits by REs within a fiscal year.
  • It will be subject to a yearly independent Third-Party Verification/Assurance.
  • The REs will also review the money’s impact annually with external firms’ assistance.

Green Finance Ecosystem

• About
  • The financial structure that supports and facilitates investments in environmentally sustainable projects and activities is called the GFS.
  • It encompasses a variety of financial products aimed to encourage ecologically friendly practices and initiatives, such as;
    • Green bonds
    • Green loans
    • Green Insurance
    • Green funds.
  • The green finance ecosystem seeks to build a financial system that facilitates the transition to a low-carbon, resource-efficient, and sustainable economy.
  • While simultaneously tackling the risks and possibilities connected with environmental challenges such as climate change, pollution, and biodiversity loss.
• Need
  • The financial sector can be critical in mobilising and allocating resources to green activities/projects. 
  • Green finance is gaining popularity in India as well.
  • The GFS can help to increase the flow of finance to green activities and projects.
  • While simultaneously protecting depositors’ interests and tackling greenwashing problems.
  • It has the potential to support sustainable development and positively impact India’s environment.

Indian Scenario

• India has begun its journey towards carbon neutrality, proposing a ‘Green Deal’ to be completed by 2070.
• Green finance has been identified as an enabler to accelerate decarbonisation under the Green Deal. 
• It underlines the importance of greater funding flow from the national government and commercial entities to create green infrastructure.
• In 2016, the RBI produced a paper on sustainable financial systems in partnership with UNEP and India.
• The research delves into several aspects of India’s financial systems and their role in promoting green finance.
• The ‘Perform Achieve and Trade’ scheme has incorporated carbon trading into the country’s policy framework.
• According to the World Economic Forum, the green bond market could be valued at more than $2 trillion by 2023.

Pic Courtesy: Treasury Today

Content Source: Indian Express

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