Green fixed deposit norms kick in from June 1. Here’s what you need to know

Green deposits are sort of an Environment, Social, Governance (ESG) investment for those who wish to see their money being used by environmental-friendly companies.

Effective June 1, banks that accept green deposits will have to inform the Reserve Bank of India (RBI) how they would invest the funds. The move is aimed at enhancing transparency and ensuring that the money goes to its intended cause.

What’s the RBI’s framework intended to offer? 

The RBI’s framework is intended to encourage regulated entities (REs) to offer green deposits to customers, protect the interest of the depositors, aid customers to achieve their sustainability agenda and help augment the flow of credit to green activities/projects. Green deposits are sort of an Environment, Social, Governance (ESG) investment for those who wish to see their money being used by environmental-friendly companies.

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What is a green deposit? 

On the outside, a green deposit works just like a normal fixed deposit. It pays interest to deposit holders, comes with a fixed tenure, and the proceeds that a bank gets from deposit holders get earmarked for allocation to green finance.

As per the framework, REs shall be required to allocate the proceeds raised through green deposits towards green activities/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.

The registered entities shall issue green deposits as cumulative or non-cumulative deposits.

On maturity, the green deposits would be renewed or withdrawn at the option of the depositor.

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How do green deposit work? 

When you invest in a green deposit, the bank uses the funds to extend loans for projects that support the United Nations Sustainable Development Goals, which include renewable energy, green transportation, waste management and so on. Companies that are seen to be environment-unfriendly do not get access to money that banks and lending institutions raise and earmark for green deposits.

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Which financial institutions are offering green deposit schemes? 

A number of financial institutions are offering green deposit schemes that include Federal Bank, IndusInd Bank, HSBC, Union Bank, DBS Bank, HDFC Bank and so on.

If you invest in HDFC green and sustainable deposit schemes, you may earn an interest rate of 7.2 percent per annum (annual income plan) for a tenure of 61 to 120 months and 7.3 percent per annum (annual income plan) for a tenure of 36 to 60 months. The interest rates are for deposits up to Rs 2 crore.

Senior citizens (60 years and above) are eligible for an additional interest of 0.25 percent to 0.5 percent p.a. on deposits up to Rs 2 crore. The rate varies with the financial institution.

Deposits of up to Rs 5 lakh are insured under Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.