RBI regulations on green deposits
26th May, 2023
Recently, the Reserve Bank of India (RBI) came up with a regulatory framework for banks to accept green deposits from customers.
What are Green deposits?
- Green deposits, although similar to regular deposits accepted by banks, have a notable distinction.
- Banks commit to allocating the funds obtained from green deposits specifically for environmentally friendly initiatives.
- This could involve utilizing the funds to finance renewable energy projects aimed at combatting climate change.
- Green deposits represent a single offering among various financial products, including green bonds, designed to enable investors to contribute funds to promote ecological sustainability.
What does the RBI’s regulatory framework say?
- Bank’s own rules: Banks need to come up with a set of rules or policies approved by their respective Boards that need to be followed while investing green deposits from customers.
- Major sectors: The RBI has 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.
- Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, etc.
- Prevention of greenwashing: The new rules prevent greenwashing.
- Greenwashing refers to making misleading claims about the positive environmental impact of an activity.