RBI Releases Guidelines To Banks For Acceptance Of Green Deposits

The Reserve Bank of India (RBI) has issued a dedicated set of guidelines to the Indian banks and Non-Banking Financial Institutions (NBFCs) for accepting green deposits effective June 1, 2023. The move will likely boost the country’s financing of renewable energy projects.

As per the mandate of the RBI, the financial institutions will extend the facility of green deposits to nine sectors, including the renewable energy sector. The other eight sectors include-energy efficiency, green buildings, clean transportation, sustainable water and waste management, pollution prevention and control, sustainable management of living natural resources, terrestrial and aquatic biodiversity conservation, and land use. 

As RBI said, a green deposit refers to an interest-bearing deposit received by regulated entities (usually banks and non-banking financial institutions) for a fixed period. The proceeds are earmarked for being allocated towards green finance. 

The RBI said that the main objective of the framework was to encourage the banks and NBFCs to offer green deposits to customers, protect the interest of the depositors and aid the customers in achieving their sustainability agenda, address greenwashing concerns, and help augment the flow of credit to green activities. 

Through these norms, the RBI mandated all the banks and NBFCs to implement a comprehensive Board-approved policy on green deposits. It also asked them to make public the policy on Green Deposits on their websites. 

The policy framework of the RBI said that under the policy, in the renewable energy sector, solar, wind, biomass, and small hydropower projects that integrate energy generation and storage will be allowed. At the same time, incentivizing the adoption of renewable energy will also be permitted. However, the norms also said that nuclear power generation, hydropower of more than 25 MW, and renewable energy projects generating energy from biomass using feedstock originating from protected areas, direct waste incineration, and landfill projects would be excluded from eligibility under Green Deposits. 

The RBI norms also said that the banks would undergo third-party verification annually. These verifications will ensure scrutinizing of the use of the proceeds as per the eligible green activities and monitor the end-use of the funds. The third-party evaluation will also look into policies and internal controls, including project evaluation and selection, management of the proceeds, and validation of the sustainability information provided by the borrower to the banks. 

The RBI has also mandated reporting and mandatory disclosure of the banks on the issue. RBI said that the banks must present the review report before the Board of Directors within three months of the end of the financial year, covering several details on the issue.