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RBI issues norms for acceptance of green deposits by banks

The Reserve Bank of India (RBI) released comprehensive instructions for banks and non-banking financial companies (NBFCs) regarding the acceptance of ‘green deposits’. These deposits can be utilized for financing ventures such as renewable energy, green transport, and green buildings.

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RBI’s framework to encourage Regulated Entities (REs) to offer green deposits to customers:

Effective June 1, 2023, the Reserve Bank of India (RBI) has introduced a framework to encourage Regulated Entities (REs) to offer green deposits to customers, protect depositors’ interests, aid customers in achieving their sustainability objectives, address greenwashing concerns, and boost credit flow to green activities/projects.

The proceeds from green deposits should be allocated based on the official Indian green taxonomy. As an interim measure, REs should channel the proceeds to a specified list of green activities/projects that encourage energy efficiency, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation, and enhance natural ecosystems and biodiversity.

However, there is a list of exclusions for REs, such as projects involving fossil fuel extraction, nuclear power generation, and direct waste incineration. Banks and NBFCs will need to implement a comprehensive board-approved policy on green deposits.

Need of these norms:

Recognized as one of the most pressing challenges globally, climate change has prompted diverse efforts to reduce emissions and promote sustainability.

In India, green finance is gaining momentum and the financial sector can play a crucial role in mobilizing resources and allocating them towards green initiatives.

As such, the Reserve Bank of India (RBI) has issued a framework for regulated entities to accept green deposits. Some regulated entities are already providing green deposits to finance green projects and activities.

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Piyush Shukla