The Reserve Bank of India (RBI) has put in place a framework for accepting green deposits, the central bank said in a notification on Tuesday. The framework will come into effect from June 1.The framework applies to banks, small finance banks, and deposit taking non-banking financial companies.
It aims to encourage lenders to offer green deposits to customers, protect interest of the depositors, aid customers to achieve their sustainability agenda, address green washing concerns and help augment the flow of credit to green activities. The framework comes at a time when environmental, social, and governance norms have gained focus in India.
Currently, various banks like Federal Bank, IndusInd Bank, and DBS Bank India accept green deposits. In early February, RBI governor Shaktikanta Das said that the central bank will issue guidelines for regulated entities to boost green finance and mitigate climate-related financial risks.
According to the RBI’s framework, lenders will be allowed to issue green deposits as cumulative or non-cumulative basis which could be renewed or withdrawn on maturity by the depositor. All conditions applicable to other public deposits will also be applicable to green deposits, RBI said.
“Regulated entities (RE) shall put in place a comprehensive board-approved policy on green deposits laying down therein, all aspects in detail for the issuance and allocation of green deposits,” according to the framework.
“The RE shall put in place a board-approved financing framework (FF) for effective allocation of green deposits. It shall also arrange to carry out an external review of their FF and the opinion from the external reviewer shall be made available on its website before implementation of the FF.”
The proceeds from green deposits will be utilised for various activities like renewable energy, energy efficiency, and clean transportation among others.