Source- This post is based on the article “Planning to invest in green deposits? RBI releases latest guidelines to explain key provisions” published in “Live mint” on 1st January 2024.
Why in the News?
Recently, the RBI released updated guidelines to clarify key provisions related to the RBI’s Green Deposits Framework.
What are Green Deposits?
1) Green deposits are similar to regular bank deposits, with the key distinction being that banks commit to allocating the funds from these deposits to support environmentally friendly initiatives.
2) For instance, a bank might specify that green deposits will be directed towards financing projects such as renewable energy initiatives to combat climate change.
What are the updated RBI guidelines for the acceptance of Green Deposits within the framework?
1) RBI clarified that it is not mandatory for the financial institutions such as banks and non-banking financial corporations (NBFCs) to raise green deposits.
2) Green deposits can be invested in short-term liquid instruments, limited to a one-year maturity. However, this restriction applies until the funds are allocated to green activities or projects.
3) The framework applies to green deposits raised by banks from June 1, 2023, onward. Banks cannot secure green deposits after financing green activities/ projects.
4) Banks must pay interest on green deposits, with no restriction on premature withdrawal, subject to guidelines. Early withdrawal does not impact activities funded by green deposits, and there is no penalty for non-allocation to green projects.
5) Banks can provide overdraft facilities against green deposits, following guidelines outlined in the RBI circular dated April 19, 2022.
6) The framework permits green deposits to be denominated in Indian Rupees only.
7) Deposits obtained within this framework fall under the protection of the Deposit Insurance and Credit Guarantee Corporation.
8) Given that the activities specified in the green deposits framework align with those outlined in sovereign green bonds, investments in sovereign green bonds are consequently included within the framework.
What are the RBI regulations on green deposits?
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