What is a Green Deposit?

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Recently, the Reserve Bank of India (RBI) said it is not mandatory for banks and Non-Banking Financial Companies (NBFCs) to raise green deposits.

About Green Deposit

  • In general terms, a green deposit is a fixed-term deposit for those who want to invest in environmentally friendly projects.
  • Just like a regular Fixed Deposit scheme, the green deposit pays interest to its investors and has a fixed term.
  • The proceeds that a bank gets from deposit holders get earmarked for allocation to green finance.
  • A green fixed deposit, also known as an environmentally friendly fixed deposit, is a financial instrument that encourages sustainable development by channelling funds towards projects focused on renewable energy, clean technology, or other environmentally beneficial initiatives.
  • The green activities/ projects financed under the framework can be classified under priority sector if they meet the requirements laid down in priority sector lending (PSL) guidelines of RBI
  • Banks are allowed to offer overdraft facility to customers against Green Deposits subject
  • The current framework permits green deposits to be denominated in Indian Rupees only.
  • The deposits raised under the framework are covered by Deposit Insurance and Credit Guarantee Corporation (DICGC) in accordance with the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the regulations framed there under, as amended from time to time.
  • On maturity, the green deposits would be renewed or withdrawn at the option of the depositor.

Q1) What is an overdraft facility ?

An overdraft facility in a Current Account allows you to withdraw from even though the balance is zero. It is a form of extension of a stipulated limit offered by banks; the said amount of funds is known as overdrawn.

Source: Not mandatory for banks, NBFCs to raise green funds, RBI clarifies