Many lenders like HSBC and HDFC have launched green deposits in India for corporates as well as individuals.
Common themes for green deposits are renewable energy, clean transportation, pollution prevention and control, green building, sustainable water, wastewater management, and others.
What is the RBI framework about?
Aim -To prevent greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.
Deposits- 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On maturity, the green deposits would be renewed or withdrawn at the choice of the depositor.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.
Application - 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).
Investors - Both corporate and individual customers can invest in green deposits.
Banks and NBFCs shall put in place a comprehensive board-approved policy on green deposits, and a copy of the policy shall also be made available on their websites.
Sectors eligible to receive green deposits– The sustainable and eligible sectors include renewable energy, waste management, clean transportation, energy efficiency, and afforestation.
Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, etc.
Review - The allocation of funds raised through green deposits during a financial year shall be subject to an independent Third-Party Verification (TPV) on an annual basis.
Impact assessment by lenders- Lenders must annually assess the impact associated with the funds lent for or invested in green finance activities and submit a review report before their Board.
Penalty -There are no penal provisions when the bank doesn’t utilise the deposits.
How are green deposits different from normal deposits?
Projects- Normal deposits cannot be allocated for specific projects, whereas green deposits are carved out specifically towards green financing.
Interest rate on green deposits – It is at the prerogative of the lender and currently the rates on these deposits aren’t significantly different from regular deposits.
What are the challenges of green deposit?
Flaws in design-Flaws in design leads to limitation of the range in the green projects that the banks can invest.
Reality being different- Green investment products are often just a way to make investors feel good about themselves and that these investments don’t really do much good to the environment.
Project sustainability- It is not sure whether the banks invested in the green projects will be sustainable.
Lack of awareness- Lack of awareness among the bank staffs leads to delay in the process of obtaining green deposits.
Lower interest rate- The investor seeks only for high return deposits and doesn’t care about being green.
