Climate change has been recognized as one of the most critical challenges and globally and various efforts have been taken to reduce emissions as well as promote sustainability. The financial sector can play a pivotal role in mobilizing resources and their allocation thereof in green activities/ projects. Green finance is also progressively gaining traction in India.
To this effect, on April 11, 2023, RBI issued detailed guidelines for acceptance of ‘green deposits’ as cumulative/non-cumulative deposits by Regulated Entities (REs, being all Scheduled Commercial Banks including Small Finance Banks and all Deposit taking Non-Banking Finance Companies, including Housing Finance Companies), wherein the funds could be used for financing activities like renewable energy, green transport and green buildings.
The purpose and rationale for such framework is to encourage REs to offer green deposits to customers, protect interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/ projects.
Since the Indian green taxonomy awaits finalization, as an interim measure, REs would be required to allocate the proceeds raised through green deposits towards a specified list of green activities/projects.
The projects must encourage energy efficiency in resource utilization, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation and value and improve natural ecosystems and biodiversity. Renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, and green buildings, are among the list of projects/activities where REs could allocate the proceeds raised through green deposits.
The REs will have to put in place comprehensive policy on green deposits.
The REs can accept green deposits denominated only in rupees and allocate the proceeds to eligible green activities/projects. The framework will come into effect from June 1, 2023.
Please find a copy of the full framework, here.
This update has been contributed by Prakash Panjabi (Senior Partner) and Aanchal Gujrani (Associate).
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