Module: | Capital Adequacy, Basel Norms & Monetary Policy
Q9: Consider the following statements regarding the operational framework and utilization of Green Deposits by Commercial Banks:
1. Commercial banks are strictly required to denominate all green deposits exclusively in Indian Rupees (INR) and are prohibited from offering differential interest rates compared to regular deposits.
2. Any unallocated proceeds from green deposits must be temporarily parked in Level 1 High Quality Liquid Assets (HQLA) for a maximum permitted tenure of exactly one year.
3. A bank can raise green deposits without a prior Board-approved Financing Framework, provided the funds are exclusively directed toward large-scale hydropower projects exceeding 25 MW.
4. Projects involving the extraction of fossil fuels, nuclear power generation, and waste incineration are explicitly placed on the negative list and are prohibited from receiving green finance.
Which of the statements given above is/are correct?
2. Any unallocated proceeds from green deposits must be temporarily parked in Level 1 High Quality Liquid Assets (HQLA) for a maximum permitted tenure of exactly one year.
3. A bank can raise green deposits without a prior Board-approved Financing Framework, provided the funds are exclusively directed toward large-scale hydropower projects exceeding 25 MW.
4. Projects involving the extraction of fossil fuels, nuclear power generation, and waste incineration are explicitly placed on the negative list and are prohibited from receiving green finance.
Which of the statements given above is/are correct?
✅ Correct Answer: C
The correct answer is Option C. Statement 1 is correct: RBI mandates that Green Deposits must be denominated exclusively in INR, and banks are strictly prohibited from offering a higher or lower differential interest rate on them compared to standard deposits of the exact same tenor.
Statement 2 is correct: To prevent fund mismanagement and idle capital risk, any unspent or unallocated green deposit proceeds must be temporarily parked in Level 1 High Quality Liquid Assets (HQLA), capped at a maximum parking duration of exactly one year.
Statement 4 is correct: The RBI framework includes a strict "Negative List" of explicit exclusions; activities such as fossil fuel extraction, nuclear power generation, and waste incineration are permanently banned from receiving green deposit funds.
Statement 3 is incorrect for two critical reasons: First, a comprehensive Board-approved Financing Framework is a mandatory prerequisite that must be in place before raising any green deposits.
Second, hydropower plants with a capacity larger than 25 MW are explicitly placed on the negative list and are excluded from the eligible green activities framework.
Therefore, Option C is the only mathematically correct combination.
Statement 2 is correct: To prevent fund mismanagement and idle capital risk, any unspent or unallocated green deposit proceeds must be temporarily parked in Level 1 High Quality Liquid Assets (HQLA), capped at a maximum parking duration of exactly one year.
Statement 4 is correct: The RBI framework includes a strict "Negative List" of explicit exclusions; activities such as fossil fuel extraction, nuclear power generation, and waste incineration are permanently banned from receiving green deposit funds.
Statement 3 is incorrect for two critical reasons: First, a comprehensive Board-approved Financing Framework is a mandatory prerequisite that must be in place before raising any green deposits.
Second, hydropower plants with a capacity larger than 25 MW are explicitly placed on the negative list and are excluded from the eligible green activities framework.
Therefore, Option C is the only mathematically correct combination.