 "Green deposits offering higher interest than regular FDs, should you pick")
In order to encourage more investments by financial institutions in environmentally friendly projects, the Reserve Bank of India (RBI) earlier this year came out with the framework for acceptance of ‘Green Deposits’. While the green deposits provide a good option for ESG-conscious customers, they are also offer a slightly better interest rates than regular fixed term deposits.
Green deposits are essentially deposits raised for the purpose of utilising the proceeds towards financing green projects/activities.
The RBI Framework defines green deposits as “an interest-bearing deposit, received by the regulated entities (REs) for a fixed period and the proceeds of which are earmarked for being allocated towards green finance”.
What are the main differences between green deposits and regular fixed deposits (FDs) offered by banks?
Fixed Deposits are one of the most utilised savings instruments for those looking for assured returns on deposits. A fixed deposit is an account opened with a bank wherein, the bank pays a guaranteed interest rate on the sums deposited in a fixed deposit account, for a stipulated period or tenure. Green Deposits also work in a similar fashion.
However, fixed deposit proceeds normally cannot be allocated for specific projects. They go towards the common deployment pool.
With green deposits, funds collected are specially carved out for green financing. As per the RBI framework, regulated entities (REs) offering green FDs are required to allocate the proceeds raised towards green projects which encourage energy efficiency in resource utilisation, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation and value and improve natural ecosystems and biodiversity.
Apart from this, all the rules applicable to regular deposits are applicable to green deposits too. Depositors have the option to redeem or carry forward the deposit upon maturity. Notably, green deposits do not offer any additional tax benefits to depositors.
Interest on green FDs
While the interest rate on FDs is bank prerogative, it has been seen, that lenders offer a slightly higher interest on green deposit schemes. As of now, only a handful of banks are offering green term deposits for individuals and companies. Most recently, AU Small Finance Bank (AU SFB) on October 25, launched its green FD called ‘Planet First – AU Green Fixed Deposit’ offering an interest rate of up to 8.50 per cent.
Key features: Green fixed deposits provide guaranteed returns and have a range of tenure options available, spanning from 18 months to 10 years. Premature withdrawal is allowed under certain conditions, and deposits up to Rs 5 lakh are insured.
Investors can choose several types of green deposits, including fixed deposits (FDs), savings deposits, recurring deposits, and certificate of deposits. Each of these deposits offers different features and benefits, enabling individuals and organisations to select the most appropriate option based on their investment objectives and personal preferences.
"When looking for a bank or financial institution that offers green deposit options, it is important to choose a reputable institution with a strong track record of responsible banking practices and transparent reporting. Additionally, compare the interest rates and returns offered on green deposits with those of regular deposits, making sure that the financial returns are competitive and in line with your investment objectives...If you are putting your money in company green deposits, make sure you opt for AAA or higher-ranked company deposits," said Adhil Shetty, CEO of Bankbazaar.
Here are the interest rates banks are offering on Green FDs compared to regular FDs:
| Banks |
Highest offered interest rate on Green Fixed Deposit
Highest offered interest rate on regular Fixed Deposit
HDFC Bank
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HDFC Limited Green and Sustainable Deposit offers 7.55 per cent interest rate on its Special Deposits for 66 month tenure
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The minimum investment amount in Rs 20,000
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The bank provides highest regular FD rates of 7.15 per cent on tenure 35 months and 7.20 per cent on tenure 55 months
IndusInd Bank
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IndusInd Bank Green Fixed Deposit's highest interest rates stands at 7.75 per cent per annum for tenure ranging from 1 year 6 months to 3 years 3 months
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The minimum amount that you need to open an FD is Rs 10,000
The bank provides highest regular FD rates of 7.85 per cent on 1 year 6 months tenure
Federal Bank
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Federal Bank Green Deposit interest rate stands at 6.60 per cent for 72 months and 30 days period
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The minimum deposit is Rs 1,000
The banks offers similar interest rate for its regular FD at 6.60 per cent for tenure ranging from 3 years to 5 years or above
AU Small Finance Bank
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The Planet First - AU Green Fixed Deposit provides highest 8.24 per cent annualised interest rate for 36 months period
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The minimum investment requirement is Rs 5,000
The banks offers similar interest rate for regular FD at 8.24 per cent annualised interest rate for tenure ranging from 24 months 1 day to 36 months
Source: bankbazaar.com
HSBC India and DBS Bank India are also offering green deposits, however, it's only offered to businesses. Globally, Citibank and HSBC offer green deposits with a slightly lower rate. There is a growing interest towards ESG rated products, like green deposits among individuals as well as institutions.
How are Green FD funds deployed?
Effective June 1 2023, the RBI requires that the proceeds raised through green deposits should be used to finance green projects/activities like, renewable energy, pollution prevention and control, Green buildings, sustainable management of living natural resources and land use, terrestrial and aquatic biodiversity conservation, energy efficiency in resource utilisation, Clean transportation, climate change adaptation and sustainable water and waste management.
However, there are a few exemptions like nuclear power generation, waste incineration, and certain landfill projects that are not included as green projects/activities.
Can depositors know about fund utilisation?
The RBI has asked entities raising green deposits to put in place a board-approved ‘financing framework’ for effective allocation of green deposits. The document will cover eligible green activities/projects that could be financed, the process for project evaluation and selection, the allocation of proceeds and its reporting, third-party verification/assurance of the allocation of proceeds and the impact assessment.
A copy of the ‘Financing Framework’ will have to be made available on the website of the entities and the opinion of the reviewer should also be put out on the website of the lender. With these checks and balances, depositors can be assured that their money is being spent for the intended purpose.