In today’s world, where the environment is facing an existential threat, it is crucial for every institution and individual to contribute to the betterment of our planet. Financial institutions, including banks and non-banking financial corporations (NBFCs), play a significant role in funding environmentally friendly projects. While it is not mandatory for these institutions to raise green deposits, if they choose to do so, they must adhere to the framework established by the Reserve Bank of India (RBI) to ensure transparency and accountability.

Understanding Green Deposits

Green deposits are a form of investment where financial institutions raise funds specifically for green activities and projects that promote environmental sustainability. These deposits are expected to be utilized for initiatives such as renewable energy, waste management, and conservation projects. The RBI has recently released guidelines to address common queries investors may have regarding green deposits.

Can Green Deposit Proceeds be Invested in Liquid Instruments?

As per the RBI’s framework, green deposits can be invested in liquid instruments with a maturity of up to one year. However, this investment can only be made until the funds are allocated to green activities or projects. The aim is to ensure that the funds raised through green deposits are effectively utilized for the intended purpose.

Green Projects First or Deposit First?

Under the RBI’s guidelines, financial institutions cannot finance green activities or projects first and then raise green deposits later. The framework applies to green deposits raised by banks on or after June 1, 2023. This ensures that the deposits are raised with a clear intention to support environmental initiatives from the outset.

Are Premature Withdrawals Allowed?

While there is no restriction on premature withdrawal of green deposits, banks are required to pay interest on these deposits to their customers. The RBI guidelines provide further details on premature withdrawal, stating that it will not have any impact on the activities undertaken using the proceeds of green deposits. Moreover, there is no penalty for non-allocation of green deposit proceeds towards green activities or projects.

Are Investments in Sovereign Green Bonds Covered?

Investments in sovereign green bonds are covered by the framework for green deposits. The activities listed in the framework for green deposits align with those specified for sovereign green bonds. This ensures that financial institutions have the flexibility to invest in sovereign green bonds as part of their green deposit initiatives.

Overdraft Facilities and Green Deposits

Financial institutions are permitted to offer overdraft facilities to customers against their green deposits. However, these facilities are subject to certain instructions provided in the RBI circular dated April 19, 2022. The guidelines ensure that the utilization of green deposits remains aligned with the intended purpose while providing customers with additional financial flexibility.

Denomination of Green Deposits

The RBI framework does not permit green deposits to be denominated in any foreign currency. This requirement ensures that green deposits remain within the local currency system, facilitating effective monitoring and utilization of the funds for environmental projects.

Deposit Insurance and Credit Guarantee

Deposits raised under the RBI’s framework for green deposits are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This provides an additional layer of security for investors, assuring them that their deposits are protected in case of any unforeseen circumstances.

Unlock a World of Benefits!

Investing in green deposits not only contributes to the well-being of the planet but also offers numerous benefits for investors. Financial institutions provide a range of services and tools that can enhance the investment experience. From insightful newsletters to real-time stock tracking, breaking news, and personalized newsfeeds, these institutions offer a comprehensive platform to support investors in their green deposit journey.

Stay Updated with Live Mint

To stay informed about the latest business news, market updates, and breaking news events, Live Mint provides a reliable and convenient platform. By downloading The Mint News App, investors can access daily market updates and gain valuable insights to make informed decisions.

In conclusion, investing in green deposits is an impactful way to contribute to environmental sustainability. The RBI’s guidelines provide a clear framework for financial institutions to raise and utilize green deposits effectively. By aligning their investments with green activities and projects, investors can play a significant role in creating a greener and more sustainable future.

Unlock a world of benefits by investing in green deposits and stay updated with Live Mint for the latest news and market updates. Together, we can make a positive difference for our planet and future generations.