What are RBI regulations on green deposits?

Source: The post is based on the article “What are RBI regulations on green deposits?” published in The Hindu on 19th May 2023

What is the News?

The Reserve Bank of India(RBI) has come up with a regulatory framework for banks to accept green deposits from customers. 

What are Green Deposits?

Green deposits are not very different from the regular deposits that banks accept from their customers.

The only major difference is that banks promise to earmark the money that they receive as green deposits towards environment­-friendly projects.

For example, a bank may promise that green deposits will be used towards financing renewable energy projects that fight climate change.

What is the purpose of RBI’s regulatory framework on green deposits? 

The regulatory framework is aimed at preventing greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.

For example, a bank may advertise that their green deposits will have a huge positive impact on the environment, while the actual impact may be minimal.

What does RBI’s regulatory framework on green deposits provide for?

It lays down certain conditions that banks must fulfil to accept green deposits from customers:

Firstly, banks will have to come up with a set of rules or policies approved by their respective Boards that need to be followed while investing in green deposits from customers. These rules need to be made public on the banks’ websites.

Secondly, the banks will also have to disclose regular information about 1) The amount of green deposits received, 2) Deposits allocated towards various green projects and 3) The impact of such investments on the environment.

Thirdly, a third ­party will have to verify the claims made by banks regarding the projects in which the banks invest their green deposits.

Lastly, RBI has also come up with a list of sectors that can be classified as sustainable and thus eligible to receive green deposits. These include renewable energy, waste management, clean transportation, energy efficiency, and afforestation.

Will Green Deposits help Depositors/Investors and the Environment?

Depositors who care about the environment may get some satisfaction from investing their money in environmentally sustainable investment products. But there are challenges since the bank is only able to invest in a certain number of projects with green funds.

When it comes to protecting the environment, green investing enthusiasts believe that putting money into green projects may be one of the best ways to help the environment.

However, critics argue that green investment products are often just a way to make investors feel good about themselves and that these investments don’t really do much good to the environment.