Green Deposits

The Reserve Bank of India (RBI) came up with a regulatory framework for banks to accept green deposits from customers.

19 May 2023

Context: 

The Reserve Bank of India (RBI) came up with a regulatory framework for banks to accept green deposits from customers. 

  • Under the new framework, banks that accept green deposits will have to disclose more information on how they invest these deposits.

About Green Deposits:

  • Difference with the Regular Deposits: 
    • Green deposits are not very different from the regular deposits that banks accept from their customers. 
    • The only major difference is that banks promise to earmark the money that they receive as green deposits towards environment friendly  projects. 
  • Purpose
    • A Bank may promise that green deposits will be used towards financing renewable energy projects that fight climate change. 
    • A bank may also avoid using green deposits to invest in fossil fuel projects that are considered harmful to the climate.

RBI’s Regulatory Framework:

  • Setting up Rules: 
    • Banks will have to come up with a set of rules or policies approved by their respective Boards that need to be followed while investing green deposits from customers. 
    • These rules need to be made public on the banks’ websites
  • Information Disclosure: Banks will also have to disclose regular information about
    • the amount of green deposits received
    • how these deposits were allocated towards various green projects
    • the impact of such investments on the environment. 
  • Third-­party Verification: A third-­party will have to verify the claims made by banks regarding
    • the projects in which the banks invest their green deposits 
    • sustainability credentials of these business projects.
  • RBI’s list of sustainable sectors eligible to receive green deposits:
    renewable energy, waste management, clean transportation, energy efficiency, and afforestation
  • Sectors not allowed:Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, gambling, palm oil, and hydropower generation.
  • Prevention of greenwashing: The new rules are aimed at preventing greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.

Doubts on utility of Green Deposits:

  • There are challenges, for the range of projects in which green funds can be invested by the bank is limited by design.
  • Critics argue that 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.
  • Green investing is criticised as “a feel­ good scam” that enriches only consultants. 
  • In a complex world where any action involves second order effects that are difficult to see, it can be extremely hard to know if a project is really environmentally sustainable.                                                                                                                                                             

News Source: The Hindu

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