Green deposits refer to a type of financial product offered by banks and financial institutions to promote environmentally sustainable initiatives and projects.
Green deposits refer to a type of financial product offered by banks and financial institutions to promote environmentally sustainable initiatives and projects. These deposits are designed to attract funds specifically for the financing of green and sustainable projects, such as renewable energy, energy efficiency, waste management, and other environment-friendly initiatives.
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There are several types of green deposits to choose from, 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.
RBI framework
The RBI aims to develop a Green Finance Ecosystem (GFS) and has issued a framework for regulated entities (REs), such as banks and Non-Banking Financial Companies (NBFCs) to accept green deposits. This will help encourage investments in green projects in India, and help customers achieve their sustainability agenda. On April 11, RBI issued a framework for acceptance of green deposits. The framework is effective from June 1, 2023. It aims to direct the flow of funds to sustainable projects, protect the interest of the depositors and address greenwashing concerns.
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As per the RBI, the financial sector has the potential to play a critical role in channelising resources towards green activities. In India, green finance has been gaining momentum, and regulated entities (REs) rely heavily on deposits as a major source of funding. In fact, some REs have already started offering green deposits to support green projects and activities.
What should investors check?
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.
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For a retail depositor, it won’t make a big difference whether she parks money in a green deposit or a normal deposit. Banks will offer a uniform interest rate on all retail deposits. However, some banks or institutions may offer a higher interest rate to retail depositors with non-callable green deposits. An additional interest rate of 0.50% p.a. is offered to senior citizens. If you are putting your money in company green deposits, make sure you opt for AAA or higher ranked company deposits.
By carefully assessing these interest rates, institutions and their investment strategies, investors can make informed decisions when choosing green deposits that align with their financial objectives and sustainability priorities.
