Context: Climate change has been recognised as one of the most critical challenges faced by the global society and economy in the 21st century. The financial sector can play a pivotal role in mobilizing resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India. Deposits constitute a major source for mobilizing of funds by the banks and some financial intermediaries are already offering green deposits for financing green activities and projects. With a view to fostering and developing green finance ecosystem in the country further, it has been decided to put in place a Framework for acceptance of Green Deposits by the banks.
What are Green Deposits?
- A green deposit is a fixed-term deposit for investors looking to invest their surplus cash reserves in environmentally friendly projects. Green bonds used to be the most common fixed-income ESG product in India earlier, and now products like green deposits are gaining significance.
- Corporates looking for inclusion of a sustainability agenda into their treasury activities or those that have limited opportunities for investment in environmentally beneficial projects can invest in these green deposits.
Purpose of the framework:
To encourage banks 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.
- Applicability: The provisions of these instructions shall be applicable to Scheduled commercial banks (excluding payment banks, RRBs), deposit taking NBFCs and Housing finance companies (HFCs)
- The Banks shall issue green deposits as cumulative/non-cumulative deposits. On maturity, the green deposits would be renewed or withdrawn at the option of the depositor. The green deposits shall be denominated in Indian Rupees only.
- The eligible banks shall put in place a comprehensive Board-approved policy on green deposits covering all aspects in detail for the issuance and allocation of green deposits.
- Allocation of funds: The proceeds raised form the green deposits shall be allocated to the following activities
- Renewable energy
- Energy efficiency
- Clean transportation
- Climate change adaptation
- Pollution control
- Sustainable management of natural resources and waste management
Projects involving nuclear power generation, generating energy from biomass and hydropower plants larger than 25MW are excluded from eligible projetcs.
The banks shall ensure that the funds raised through green deposits are allocated to the eligible green activities/projects.
- Third party verification: Allocation of funds raised through green deposits shall be subject to an independent Third-Party Verification/Assurance which shall be done on an annual basis. The third-party assessment would not absolve the bank of its responsibility regarding the end-use of funds.
- A review report shall be published by the banks covering the details about amount raised under green deposits, amount of funding to the eligible green projects and third-party verification report.