Why is it in the news?

• The Reserve Bank of India (RBI) recently released updated guidelines elucidating key provisions related to the Green Deposits Framework.

About Green Deposits

• Green deposits resemble regular bank deposits, with a crucial distinction.
• Financial institutions committing to allocate funds from these deposits to support environmentally friendly initiatives characterize them.
• For instance, funds mobilized through green deposits might be specifically directed towards financing projects such as those related to renewable energy to combat climate change.

Updated RBI Guidelines

• RBI emphasizes that raising green deposits is not mandatory for financial institutions, including banks and non-banking financial corporations (NBFCs).
• Green deposits can be invested in short-term liquid instruments but are restricted to a one-year maturity. This restriction persists until the funds are effectively allocated to green activities or projects.
• The framework becomes applicable to green deposits raised by banks from June 1, 2023.
• After financing green activities/projects, banks are barred from securing additional green deposits.
• Banks are required to pay interest on green deposits.
• There is no restriction on premature withdrawal, subject to established guidelines.
• Early withdrawal does not negatively impact activities funded by green deposits, and there is no penalty for non-allocation to green projects.
• Banks have the provision to offer overdraft facilities against green deposits, adhering to the guidelines specified in the RBI circular dated April 19, 2022.
• Green deposits are allowed to be denominated in Indian Rupees exclusively within the framework.
• Deposits acquired within this framework fall under the protective ambit of the Deposit Insurance and Credit Guarantee Corporation.
• The specified activities within the green deposit framework align with those outlined in sovereign green bonds. Consequently, investments in sovereign green bonds are included within the framework.