The Reserve Bank of India has announced the framework for accepting green deposits of regulated entities (RE).
What is a green deposit?
A green deposit is an interest-bearing deposit received by the regulated entity for a fixed period and the proceeds are earmarked for being allocated towards green finance. These are like your regular fixed deposits issued by banks, and the only difference is that the money collected can be invested only in specified activities.
Why green deposits?
The framework’s purpose is to encourage regulated entities to offer green deposits to customers, protect the interest of the depositors, aid customers in achieving their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/projects.
What are the specified activities?
*Renewable energy
*Energy efficiency
*Clean Transportation
*Climate change adaptation
*Sustainable water and waste management
*Pollution prevention and control
*Green buildings
*Sustainable Management of Living Natural Resources and Land Use
*Terrestrial and Aquatic Biodiversity Conservation
The framework also lists areas where these funds cannot be deployed. These include:
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.
*Nuclear power generation.
*Direct waste incineration.
*Alcohol, weapons, tobacco, gaming, or palm oil industries.
*Renewable energy projects that generate energy from biomass using feedstock originating from protected areas.
*Landfill projects.
*Hydropower plants larger than 25MW
What are the regulated entities?
(a) Scheduled Commercial Banks, including Small Finance Banks (excluding Regional Rural Banks, Local Area Banks and Payments Banks) and
(b) All deposit-taking Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs).
How do we know the money is invested properly?
he 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 annually. While assurance is required, the regulated entities cannot wash their hands of their responsibilities.
The RE shall place a review report before its Board of Directors within three months of the end of the financial year.
Utkarsh Majmudar 