Your Money, Our Planet: RBI’s Clarity On Green Deposits

INTRODUCTION:

In a strategic move aimed at addressing the growing concerns surrounding climate change, the Reserve Bank of India (RBI) has stepped forward, providing clarity on the acceptance of Green Deposits through a set of Frequently Asked Questions (FAQs)[1].

This framework seeks to offer clear guidelines for banks and Non-banking Financial Companies (NBFCs) intending to direct funds toward eco-friendly activities and projects.

This step comes as experts raise alarms about increased climatic disturbances in the Bay of Bengal and Arabian Sea, emphasizing the urgency for collaborative efforts to combat the change in climate.

KEY POINTS:

• Voluntary Compliance: RBI clarifies that Regulated Entities (REs) are not compelled to raise green deposits, but those choosing to do so must adhere to the newly outlined guidelines.
• Investment Allocation in Liquid Instruments: Unallocated proceeds can be temporarily invested in liquid instruments for a maximum maturity of one year, provided it is explicitly specified within the Financing guidelines.
• Supervisory Review: No penalties are specified for non-allocation of proceeds to activities/projects, but such cases will be subject to supervisory review.
• Timeline: Commencing from June 1, 2023, financial institutions cannot fund environmental projects or activities before raising green deposits.
• Priority Sector: Initiatives funded under this framework can be classified under the priority sector, aligning with the Priority Sector Lending (PSL) guidelines of RBI.
• Overdraft Facility: Banks are allowed to extend overdraft facilities to customers against Green Deposits, subject to specified instructions.
• DICGC Coverage: Deposits raised under this framework are covered by the Deposit Insurance and Credit Guarantee Corporation Act, 1961, with the condition that green deposits can only be denominated in Indian Rupees.

Additionally, the framework extends its purview to Sovereign Green Bonds (SGrBs) investments, highlighting alignment with initiatives outlined in the SGrBs framework.

This inclusion strengthens the interconnected efforts by various entities, both governmental and private in India, issuing bonds for supporting environmentally beneficial investments.

CONCLUSION:

The primary goal of this framework is to clarify the role of the financial sector in mobilizing resources while ensuring effective fund allocation towards a more resilient future.

On a personal note, witnessing these initiatives sparks optimism, reflecting a collective commitment towards a greener, more conscientious financial landscape.

[1] https://www.rbi.org.in/commonperson/English/Scripts/FAQs.aspx?Id=3545.