Current Context: The Reserve Bank of India (RBI) has announced a new framework for offering green deposits to customers with the objective of developing a Green Finance Ecosystem (GFE) in India. This framework will come into effect from June 1, 2023.
- A Green Deposit is a type of interest-bearing deposit that is received by a Regulated Entity for a specified period, and the funds are reserved for use in green finance.
- The guidelines apply to scheduled commercial banks, excluding regional rural banks, local area banks, payments banks, and housing finance companies, as well as deposit-taking non-banking financial companies.
- However, certain industries such as nuclear power, direct waste incineration, alcohol, tobacco, palm oil, landfill projects or hydroelectric plants larger than 25 MW, and renewable energy projects generating energy from biomass using feedstock from protected areas are excluded from the framework.
Green Finance Ecosystem - The term GFE refers to a financial system that facilitates investment in projects and activities that promote environmental sustainability. This system encompasses various financial instruments such as green bonds, green loans, green insurance, and green funds, all of which are intended to encourage eco-friendly methods and initiatives. The ultimate goal of the Green Finance ecosystem is to establish a financial framework that encourages the transition to a sustainable, low-carbon, and resource-efficient economy, while also acknowledging the potential risks and benefits related to environmental concerns such as climate change, pollution, and loss of biodiversity.
