RBI looking at suitable coverage for green deposits; Patra claims that climate change poses a serious threat to the world economy

According to Patra, the development of the deposit insurance function would probably face more difficult obstacles in an environment of increased uncertainty.

The economy is seriously at danger from climate change, according to RBI deputy governor Michael Patra.

Climate change is the largest danger to the world economy, according to deputy governor Michael Patra of the Reserve Bank of India (RBI), which is looking into suitable coverage for green deposits.

Patra said, "We are investigating suitable coverage for green deposits, climate-risk based differential premiums as well as ex ante funding needs for climate long-term sustainability," on June 14 at the International Association of Investment Insures (IADI) 79th Executive Committee Meeting in Rome, Italy.

The RBI quoted Patra as stating in a statement on June 18 that "new challenges would inevitably require effective collaboration and the sharing of data between domestic insurers and other national safety net stakeholders as well as with those in other jurisdictions."

Bank clients in India may purchase deposit insurance from the Deposit Insurance and Credit Guarantee Corporation (DICGC). In the case of a bank failure, it intervenes when the money of depositors is at risk. DICGC is an RBI subsidiary that it owns in full.

Patra, one of the four deputy governors of the RBI, said that the development of the deposit insurance role was expected to face increasingly difficult problems in an environment of increased uncertainty. "For instance, climate change is emerging as an encompassing risk to the global economy and financial systems," he said.

Patra said that 60% of deposit insurers have formalized Environmental, Social, and Governance (ESG) policies, and some of these companies were members of the Network for Greening the Financial System (NGFS). She cited studies conducted by IADI.

"This is what is keeping us awake in India – framing a comprehensive ESG policy, taking into account elements of climate sustainability, investment in sovereign green bonds, measuring the impact of changing the climate on default risk and contingency planning for climate related catastrophic circumstances via actuarial analysis," the deputy governor stated.

The RBI published the guidelines for accepting "green deposits" from regulated businesses in April 2023. According to the central bank, the goal was to cultivate and expand the nation's green financial ecosystem.

According to the framework, regulated businesses may provide green deposits to clients, safeguard depositors' interests, assist clients in achieving their sustainability goals, resolve complaints about greenwashing, and support the expansion of credit available for green initiatives.

Following the discovery of an opportunity and prodding from the banking regulator, some banks are now paying more attention to the green finance industry, according to a September Moneycontrol study. To develop a business plan, they are either choosing to explore particular items or to form partnerships.

Banks such as Federal Bank, IDFC First Bank, Bank of Maharashtra, Canara Bank, and HSBC India have developed specialized products or collaborated with various businesses and service providers.