In the wake of existential threat that stares at the planet, every institution and individual is urged to do their bit for the environment. Financial institutions are expected to fund these projects for the betterment of humanity and for the planet we inhabit.
Although it is yet not mandatory for the financial institutions such as banks and non-banking financial corporations (NBFCs) to raise green deposits, if they do, they are supposed to follow the framework made by the Reserve Bank of India (RBI).
Recently, the RBI released a document giving detailed replies to a set of queries investors may have with regards to green deposits.
The green deposits can be invested in liquid instruments with maturity up to one year only. But this can be done till the money is invested in green activities/ projects.
The banks cannot finance green activities/ projects first and raise green deposits later. Besides, the framework is applicable for green deposits raised by banks on or after June 1, 2023.
The banks must pay interest on green deposits to their customers. There is no restriction on premature withdrawal of green deposits, however the banks will adhere to the guidelines given in the master circular.
Additionally, premature withdrawal will not have any bearing on the activities undertaken using the proceeds of green deposits. Also, there is no penalty for non-allocation of proceeds towards green activities/ projects.
Since the activities listed in the framework for green deposits are the same as given in sovereign green bonds, investment in sovereign green bonds — therefore — are covered under the framework.
Banks are permitted to offer overdraft facilities to their customers against green deposits. However, they are subject to certain instructions given in the RBI circular dated April 19, 2022
The framework does not permit green deposits to be denominated in any foreign currency.
The deposits raised under the framework are covered by the Deposit Insurance and Credit Guarantee Corporation.
By
KMA Team
