Framework for issuance of Green Deposits by RBI

RBI has come up latest on the framework to be considered for issuance of green deposits in India on April 11, 2023, and the same is effective from June 1, 2023.

RBI has come up latest on the framework to be considered for issuance of green deposits in India on April 11, 2023, and the same is effective from June 1, 2023.

The purpose of this is to regulate the Regulated Entities (RE) to offer green deposits and to protect the interest of customers and to help the customers in achieving their sustainable goals in a better way.

The RE can issue the Green deposits as cumulative or non-cumulative deposits and has the option to get it either renewed or withdrawn at the time of maturity with fixed rate of interest as per the master direction given by RBI- Reserve Bank of India - Master Directions (rbi.org.in) . The denomination will be in INR only.

The RE shall publish their comprehensive Board approved policy on their website and the same will have in detail regarding the issuance and allocation of green deposits. The Copy of the Financing Framework specifying the policy framework should be made available on the website of the RE. The RE must get their Financing Framework review by an External reviewer before implementing the same.

Green activities /Project – The projects related to Renewable energy, Energy Efficiency, Clean Transportation, Climate Change adoption, Sustainable water and waste management, Pollution prevention and Control, Green Buildings, Sustainable Management of Living of Natural Resources and Land use, Terrestrial and Aquatic Biodiversity Conservation and there are few exceptions to the same. The same is explained in detail para 7 of the framework ( rbi framework for acceptance of Green deposits.PDF).

Green Deposit: The interest-bearing deposit received by the RE for a certain fixed period (as permitted by master circular) and the proceeds are used for ear marked purposes related to green activities/projects.

Green washing: The practice of marketing the products/services as green, even if the same does not meet the requirements defined under green activities/project.

Policy Framework:

Board approved Financing Framework for effective allocation of green deposits should include the process related to use of proceeds , selection criteria , project evaluation, allocation of proceeds which means allocation of funds from the proceeds of green deposits , third party verification/assurance and impact assessment , temporary allocation ( for maximum of 1 yr. which will be liquid instruments) which are pending for allocation of eligible projects/activities.

Use of Proceeds: The allocation of proceeds will be mentioned on the Indian green taxonomy. In the absence of finalization of the same the for the time being the green deposits towards the list of green projects/activities mentioned in Framework of Sovereign green bonds mentioned in Nov 9,2022 holds good.

Third Party Verification: It must be done on an annual basis by the third parties regarding verification/assurance and impact assessment to verify the internal checks, procedures, and end use of the funds. It should be noted here that third party assessment would not release the RE from its responsibilities. Framework is mentioned in detail in RBI Framework of issuance of green deposits by RBI. Impact Indicators list is mentioned in Annx-1 of the RBI framework for acceptance of green deposits.

The Impact assessment is voluntary from 2023-24 financial year and mandatory from 2024-25 and the report should be posted on the website of the RE.

Reporting and Disclosures:

The RE must submit as per the proforma of Annx-2 of the RBI framework for acceptance of green deposits about disclosures in financial statements regarding the details in documented form. It must be submitted within 3 months from the end of the financial year regarding the green deposits in relation to amount raised, allocated, brief details of the project, third party verification/Assurance report etc. before the board of directors.

Conclusion:

It is welcoming step to have some framework and policies in place as the funds must be used for earmarked purposes and there should not be any scope for misuse of the funds as it indirectly led to delay in achieving the sustainable goals of UN and our effort to keep the world better place to live in for our future generations will become far off.


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