GREEN DEPOSITS

REGULATORY FRAMEWORK FOR GREEN DEPOSITS BY RBI

       1. Investment information

• The banks accepting green deposits from customers will have to disclose more information on how they invest these deposits.

2. Certain policies or rules

• The bank accepting green deposits must come up with a set of rules or policies approved by their respective Boards that will have to be adhered while investing green deposits from customers.

3. Disclosure of information

• The green deposit rules need to be made public on the banks’ websites.
• Apart from disclosing how the amount is invested, the banks must also provide information on impact of such investments on the environment.

4. Third-party verification

• An independent third-party will have to verify the claims made by banks regarding the projects in which green deposit money has been invested.
• The sustainability credentials of such projects also need to be verified.

5. Eligible sectors

• RBI has provided a list of sectors that can be considered as sustainable and thus eligible to receive green deposits.
• Some of these sectors include renewable energy, clean transportation, energy efficiency, waste management, afforestation, management of living natural resources, and biodiversity conservation.

6. Non-eligible sectors

• Banks will not be allowed to invest green deposit money into business projects involving fossil fuels, nuclear power, gambling, palm oil, tobacco, and hydropower generation.

7. Rupee denomination

• The money deposited in green deposits will be denominated in rupees only Green deposits can only, if they are raised in India after June 1, 2023.

8. Premature Withdrawal

• There is no restriction on the premature withdrawal of green deposits. However, REs must adhere to existing guidelines.

9. Impact of Withdrawals

• Premature withdrawals will not impact activities or projects undertaken using the proceeds of green deposits.

10. Temporary Parking of Proceeds

• REs can temporarily park proceeds of green deposits, pending allocation towards green activities or projects, in liquid instruments with a maximum maturity of up to one year.

11. Foreign Banks

• Foreign banks can have a common global policy on green deposits, but they must comply with the framework for green deposits raised in India after June 1, 2023.

SIGNIFICANCE OF RBI’S GUIDELINES

        1. Prevent greenwashing

• The RBI’s guidelines will help prevent greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.

2. Prevent investments on high-return projects

• Without RBI’s guidelines, banks may be tempted to invest green deposit money in high-return projects, which are not environmentally friendly.

3. Transparency

• The depositor will know how his/her money under green deposits is being invested. This will encourage more such investors to join the scheme.

4. Promote green financing

• The RBI’s framework on green deposits provides an opportunity to promote green financing in India.

POTENTIAL BENEFITS FOR DEPOSITORS/INVESTORS

• Depositors who care about the environment may find satisfaction in investing their money in environmentally sustainable projects.
• Green deposits can align with the values and beliefs of individuals who prioritize environmental sustainability.
• Investing in green projects can be seen as a way to contribute to environmental preservation and positive change.

HOW ARE GREEN DEPOSITS DIFFERENT FROM NORMAL DEPOSITS

• Projects 
• Normal deposits cannot be allocated for specific projects, whereas green deposits are carved out specifically towards green financing.

• Interest rate on green deposits 

• It is at the prerogative of the lender and currently the rates on these deposits aren’t significantly different from regular deposits.

BENEFITS OF GREEN DEPOSITS

       1. Moral satisfaction

• Depositors who care for environment may get some satisfaction from investing their money in environmentally sustainable investment projects, thus contributing for environment.

2. Environmentally friendly good returns

• Green deposits provide good returns while being environmentally-friendly.

3. Environmental funding

• Projects that have net positive impacts on environment will be promoted through green deposits. Such projects need not struggle to get funding.

4. Balancing development and environment protection

• Existing developmental projects will be balanced by environmentally sustainable projects through green deposits.

5. Encouraging Sustainable Practices

• By offering green deposits, financial institutions can encourage businesses to adopt more sustainable practices, knowing that there is a demand for such investments.

6. Financial Innovation

• Green deposits may drive financial innovation, leading to the development of new financial products and services that align with environmental sustainability goals.

CHALLENGES OF GREEN DEPOSIT

        1. Flaws in design 

• Flaws in design leads to limitation of the range in the green projects that the banks can invest.

2. Reality being different 

• 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.

3. Project sustainability 

• It is not sure whether the banks invested in the green projects will be sustainable.

4. Lack of awareness 

• Lack of awareness among the bank staffs leads to delay in the process of obtaining green deposits.

5. Lower interest rate 

• The investor seeks only for high return deposits and doesn’t care about being green.