Green Deposits
Why in news:
- The RBI has announced a framework on the issuance of green deposits to be offered by banks.
About Green Deposits:
- A green deposit is an interest-bearing instrument received by banks for a fixed period, the proceeds of which are earmarked for green-financing, such as funding of renewable energy projects.
- As Per the RBI framework, banks will offer the deposits as cumulative/ non-cumulative deposits.
- On maturity, the green deposits would be renewed or withdrawn at the choice of the depositor.
- The green deposits shall be denominated in rupees only.
- Banks and NBFCs shall put in place a comprehensive board-approved policy on green deposits, laying down all aspects in detail for the issuance and allocation of green deposits and a copy of the policy on ‘green deposits’ shall also be made available on their websites.
Who can accept green deposits?
- Some banks are already accepting green deposits and the framework is intended to formalise the instrument.
- Housing Development Finance Corp (HDFC), IndusInd Bank, Federal Bank and DBS Bank offer such deposits.
- For less than Rs 2 crore amount of deposits, Federal Bank has a green deposit scheme of 2,222 days where it offers up to 6.6% interest, as per its website.
- DBS Bank India, meanwhile, announced the launch of its green deposit programme for corporate clients last year.
- The framework applies to all scheduled commercial banks and small finance banks (except for regional rural banks and local area banks) and non-banking finance companies (including housing finance companies).
- Both corporate and individual customers can invest in green deposits.
Green versus fixed deposits:
- While banks offer nearly similar interest rates on both green deposits and fixed deposit schemes, the end-use of the funds is different.
- While a bank may use capital raised via fixed deposit to lend or invest in even carbon-heavy sectors, they cannot use proceeds from green deposits for non-environment friendly projects.
- New or existing extraction, production and distribution of fossil fuels, nuclear power, waste incineration, alcohol, weapons, tobacco, gaming, landfills, and palm oil industries will be excluded from green deposit funding.
- The proceeds from green deposits can be used to fund projects in 9 sectors — renewable energy, energy efficiency, clean transportation, climate-change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, management of living natural resources, and biodiverity conservation.
Syllabus: Prelims + Mains; GS III – Economy
