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What is the framework for acceptance of Green Deposits?

Reserve Bank of India (RBI) has issued a framework for acceptance of Green Deposits by the regulated entities, to foster and develop green finance ecosystem in the country.

What is Green Deposit and Green Finance?

  • “Green deposit” means an interest-bearing deposit, received by the regulated entities (REs) for a fixed period and the proceeds of which are earmarked for being allocated towards green finance.
  • “Green finance” means lending to and / or investing in the activities / projects that contributes to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives - including biodiversity management and nature-based solutions.

What is the purpose of framework for acceptance of green deposits?

  • To encourage REs to offer green deposits to customers.
  • To protect interest of the depositors and aid customers to achieve their sustainability agenda.
  • To address greenwashing concerns and help augment the flow of credit to green activities / projects. 

“Greenwashing” means the practice of marketing products / services as green, when in fact they do not meet requirements to be defined as green activities / projects.

From when will the framework be applicable?

The framework for acceptance of green deposits will come into effect from June 01, 2023.

Which entities will be covered under the framework?

The framework will be applicable to the following entities, collectively referred to as REs –

  • Scheduled Commercial Banks including Small Finance Banks (excluding Regional Rural Banks, Local Area Banks and Payments Banks).
  • All Deposit taking Non-Banking Financial Companies (NBFCs) registered with RBI under Section 45IA(5) of the Reserve Bank of India Act, 1934, including Housing Finance Companies (HFCs) registered under Section 29A of the National Housing Bank Act, 1987.

What will be the features of green deposits?

  • Green deposits will be issued as cumulative / non-cumulative deposits. 
  • On maturity, the green deposits would be renewed / withdrawn at the option of the depositor. 
  • Green deposits will be denominated in Indian Rupees only. 

What will be the permitted purposes for allocation of proceeds from Green Deposits?

REs will be required to allocate the proceeds raised through green deposits towards the following green activities / projects –

  1. Renewable Energy
  2. Energy Efficiency
  3. Clean Transportation
  4. Climate Change Adaptation
  5. Sustainable Water and Waste Management
  6. Pollution Prevention and Control
  7. Green Buildings
  8. Sustainable Management of Living Natural Resources and Land Use
  9. Terrestrial and Aquatic Biodiversity Conservation

Which purposes will not be permitted for allocation of proceeds from Green Deposits?

The following purposes will be excluded from the eligible green activities / projects for allocation of funds raised through green deposits –

  1. Projects involving new or existing extraction, production and distribution of fossil fuels, including improvements and upgrades; or where the core energy source is fossil-fuel based.
  2. Nuclear power generation.
  3. Direct waste incineration.
  4. Alcohol, weapons, tobacco, gaming, or palm oil industries.
  5. Renewable energy projects generating energy from biomass using feedstock originating from protected areas.
  6. Landfill projects.
  7. Hydropower plants larger than 25 MW.

How the allocation of funds shall be monitored?

  • The allocation of funds raised through green deposits by REs during a financial year shall be subject to an independent Third-Party Verification / Assurance which shall be done on an annual basis.
  • REs, with the assistance of external firms, shall annually assess the impact associated with the funds lent for or invested in green finance activities / projects through an Impact Assessment Report. 
    • In case REs are unable to quantify the impact of their lending / investment, they shall disclose, at the minimum, the reasons, the difficulties encountered, and the time-bound future plans to address the same. 
    • Impact Assessment shall be undertaken on a voluntary basis for the financial year 2023-24. 
    • REs shall have to mandatorily make an impact assessment from the financial year 2024-25 onwards.
  • REs shall place the report of the Third-Party Verification / Assurance and Impact Assessment Report on their website.

What will be the reporting requirements relating to green deposits?

  • A review report shall be placed by the RE before its Board of Directors within 3 months of the end of the financial year which shall, inter-alia, cover the following details –
    • Amount raised under green deposits during the previous financial year.
    • List of green activities / projects to which proceeds have been allocated, along with a brief description of the projects.
    • The amounts allocated to the eligible green activities / projects.
    • A copy of the Third-Party Verification / Assurance Report and the Impact Assessment Report.
  • REs shall make appropriate disclosures in their Annual Financial Statements on the portfolio-level information regarding the use of the green deposit funds.


References

Reserve Bank of India. (2023, April 11). 'Framework for acceptance of Green Deposits'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12487&Mode=0


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