LI Network
Published on: January 1, 2024 at 11:00 IST
The Reserve Bank of India (RBI) has clarified that it is not mandatory for banks and Non-Banking Financial Companies (NBFCs) to raise green funds. However, if they choose to do so, they must adhere to the prescribed framework.
The central bank issued a set of Frequently Asked Questions (FAQs) related to the ‘Framework for Acceptance of Green Deposits’ to provide further clarity on the matter.
In April 2023, the RBI had issued comprehensive guidelines outlining the acceptance of “green deposits” by banks and NBFCs. These funds were intended for financing activities such as renewable energy, green transport, and green buildings. The framework officially came into effect on June 1, 2023.
According to the FAQs, RBI-regulated entities (REs) are required to pay interest on green deposits to customers based on agreed terms and conditions, irrespective of the allocation or utilization of the proceeds. The FAQs also emphasize that there are no restrictions on premature withdrawal of green deposits. However, REs must adhere to existing guidelines.
Premature withdrawals will not impact activities or projects funded by the proceeds of green deposits, as stated in the FAQs. REs can temporarily place the proceeds of green deposits in liquid instruments with a maximum maturity of up to one year while awaiting allocation to green activities or projects.
The FAQs also highlight that foreign banks can adopt a common global policy on green deposits without prejudice to the provisions of the framework applicable to green deposits raised in India after June 1, 2023. Additionally, if green deposits are denominated in foreign currency, the current framework permits them to be denominated in Indian rupees only.
The RBI stressed the crucial role of the financial sector in mobilizing resources for green activities and projects. The framework for accepting green deposits aims to encourage REs to offer such deposits to customers, safeguard depositors’ interests, support customers in achieving sustainability goals, address concerns related to greenwashing, and enhance the flow of credit to green activities and projects.