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The Challenges of Mobilizing Green Deposits in India

The RBI’s Framework and the Challenges

More than a year after the Reserve Bank of India (RBI) issued a framework for banks to accept and promote green deposits, lenders are finding it hard to mobilize such deposits, mainly due to the lack of incentives for both banks and customers. Green deposits are long-term deposits used to fund climate-friendly projects and develop a green financing ecosystem.

The Current State of Green Deposits

The largest lender, State Bank of India (SBI), has been able to garner only Rs 22.39 crore under the green deposit scheme launched last fiscal, its annual sustainability report showed. SBI’s green rupee term deposit is available for three specific tenures — 1,111, 1,777, and 2,222 days — at 10 basis points (bps) below card rate for retail deposits.

Bank of Baroda (BoB), on the other hand, has fared better, opening over 12,000 green deposit accounts and raising Rs 106.69 crore as on June 17, after launching the scheme in March this year.

The Need for Incentives

Customers do not care about the nature of deposit; they only want good returns. Therefore, there must be a cash reserve ratio (CRR) or statutory liquidity ratio (SLR) cut on green deposits for banks to engage in certain assets. For instance, when banks raise funds from multilateral institutions, they get it at a concessional rate or terms. The institutions want banks to display that funds are being used to finance green sectors. Banks share those details with them, and there is a commercial sense to it. In green deposits, however, there is no incentive, and this is the prime reason for banks not starting a green deposit scheme till now.

The Role of AI legalese decoder

In this situation, AI legalese decoder can help banks and financial institutions by providing them with a comprehensive analysis of the RBI’s framework and the challenges faced by banks in mobilizing green deposits. The AI tool can also help identify the need for incentives and suggest ways to make green deposits more appealing to customers.

Suggestions for Incentives

To make green deposits more appealing to customers, banks must be made fully aware that apart from returns, such deposits are used to fund green activities, such as renewable energy and clean transportation, among others, which can help reduce carbon emissions and support India’s goal of achieving net-zero emissions. Incentives such as interest subvention for loans towards certain eligible categories can be deliberated, and the RBI can also consider inclusion of additional eligible green categories in the ambit of priority sector lending (PSL) classification.

Conclusion

The mobilization of green deposits is crucial for the development of a green financing ecosystem in India. However, the lack of incentives for banks and customers is a significant challenge. AI legalese decoder can help banks and financial institutions by providing them with a comprehensive analysis of the RBI’s framework and the challenges faced by banks in mobilizing green deposits.

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