RBI Issues Framework for Acceptance of Green Deposits [UPSC Current Affairs]

In April 2023, the RBI issued elaborate guidelines for the acceptance of ‘green deposits’ by banks and NBFCs. It stated that the funds can be utilized for financing activities in renewable energy, green transport and green buildings. Know more about this development for the IAS exam economy segment.

Framework for Green Deposits

• The framework will be effective from June 1, 2023.
• It will cover Scheduled Commercial Banks, including SFBs but excluding Regional Rural Banks (RRBs).
• It will also cover Local Area Banks, Payments Banks, and all deposit-taking Non-Banking Financial Companies (NBFCs), including Housing Finance Companies.

What is the allocation?

• The proceeds raised through green deposits towards green activities and projects which encourage energy efficiency in-

1. resource utilization
2. reducing emissions of greenhouse gasses
3. promote climate resilience/adaptation, and
4. improve natural ecosystems and biodiversity

What is excluded?

• Activities involving new or existing extraction, production and distribution of fossil fuels, including improvements and upgrades. 
• Nuclear power, direct waste incineration, alcohol, weapons, tobacco, gaming, or palm oil industries.
• Renewable energy projects generating energy from biomass using feedstock originating from protected areas.
• Landfill projects and hydropower plants larger than 25 MW.

The Framework:

• Regulated Entities (REs) must evolve a Board-approved Financing Framework (FF). 
• The green deposits shall be in Indian Rupees only.
• The allocation of funds shall be subject to independent third-party verification/assurance conducted annually.

What is the Green Finance Ecosystem?

• It is the financial ecosystem that supports investments in environmentally sustainable projects and activities.
• It includes a plethora of financial products, including green bonds, green loans, green insurance, and green funds.
• It aims to create a low-carbon, resource-efficient, and sustainable economy, while also addressing the risks and opportunities associated with environmental issues such as climate change, pollution, and biodiversity loss.

What is the Need?

• It promotes sustainable development and creates a positive impact on the environment.
• India has committed to achieve net zero emissions by 2070.
• Our Green Deal states green finance as an enabler to accelerate decarbonisation. 
• In 2016, the RBI along with UNEP reported that India is on the lines of sustainable financial systems.

Government initiatives:

• Carbon trading in the policy framework through the ‘Perform Achieve and Trade’ (PAT) scheme.
• Allowed FDI up to 100% under the automatic route in the renewable energy sector.
• Waived Inter-State Transmission System (ISTS) charges for inter-state sale of solar and wind power for projects.
• Provisions for Renewable Purchase Obligation (RPO) and Renewable Energy Parks.
• The National Hydrogen Mission has been announced.
• Nationally Determined Contribution under the Paris Agreement with quantified targets.

Way Forward: Our green economy has a lot of potential and is showing promising signs of growth. Promoting sustainable finance through both institutional and informal means will enable the country’s transition towards a low-carbon, resource-efficient, and sustainable economy.

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