Green Deposits: RBI Releases Latest Guidelines For Banks, NBFCs

Even as the climate change issue has been recently discussed extensively during COP28 meeting in Dubai, climate financing was one of the topics. Financial institutions, including banks and non-banking financial companies (NBFCs), are expected to raise funds for green climates. As part of this, these institutions raise green deposits from customers. On this, the Reserve Bank of India (RBI) has released frequently asked questions (FAQs) on the ‘Framework for acceptance of Green Deposits’.

Banks and NBFCs are regulated entities (REs) for the RBI.

Is it mandatory for the regulated entities (REs) to raise green deposits?

It is not mandatory but in case REs intend to raise green deposits from their customers they should follow the framework prescribed therein.

Can unallocated proceeds of green deposits be invested in liquid instruments?

The REs can temporarily park proceeds of green deposits, pending allocation towards green activities/ projects, in liquid instruments with maximum maturity upto one year (This will have to be specified under the Financing Framework).

The framework does not envisage any penalty for non-allocation of proceeds towards green activities/ projects; however, it shall be subject to supervisory review.

Can green activities/ projects finance first and then later raise green deposits?

The framework is applicable for green deposits raised by REs on or after June 01, 2023. REs cannot finance green activities/ projects first and raise green deposits thereafter.

Is it covered under the priority sector?

Yes, the green activities/ projects financed under the framework can be classified under priority sector if they meet the requirements laid down in priority sector lending (PSL) guidelines of RBI.

Investments in Sovereign Green Bonds covered under the framework?

As the activities/ projects listed in the framework are the same as indicated in Sovereign Green Bonds (SGrBs) framework, investment by REs in SGrBs are covered under the framework.

Can banks allow overdraft facility to customers against green deposits?

Banks are allowed to offer overdraft facility to customers against Green Deposits subject to instructions.

Are the deposits raised under the above framework covered by Deposit Insurance and Credit Guarantee Corporation (DICGC)?

The deposits raised under the framework are covered by DICGC in accordance with the Deposit Insurance and Credit Guarantee Corporation Act, 1961.

Can the green deposits be denominated in foreign currency?

No. The current framework permits green deposits to be denominated in Indian Rupees only.

Whether foreign banks can have a single global policy on green deposits?

Foreign banks can have a common global policy on green deposits, without prejudice to the provisions of the framework for green deposits raised in India after June 01, 2023.