Green deposits
Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Green deposits are bank deposits whose money can be lent only to climate-friendly and environment-friendly projects. Examples include renewable energy, clean transport and energy-efficient buildings. The depositor earns interest as on a normal term deposit. The difference is that the bank must earmark (set aside for a named purpose) the funds for green activities. RBI issued a framework for green deposits in April 2023. It helps channel household savings into climate goals.
Example
A saver puts Rs 5 lakh into a bank's green fixed deposit. The bank must use an equal amount to fund green projects, such as a rooftop solar project or electric bus purchases. It cannot lend that money for a coal plant.
Don't confuse with
- Green bonds: debt securities issued by governments or companies to raise money from investors for green projects. Green deposits are raised by banks from their depositors.
Related concepts
- CASA ratio
- Credit-deposit ratio
- Base rate
- Marginal Cost of Funds based Lending Rate
- External Benchmark Lending Rate
- Loan-to-value ratio
- Adverse selection
- Credit information company
- Letter of credit
- Factoring