Back in 2015, the Government of India had set a target to have 175GW of installed renewable energy capacity by 2022. If we talk about numbers, that is about 200$ Billion worth of investments in the 7 years. Now, big infrastructural projects like energy capacity building require substantial funds. Soon after this announcement, we witnessed Green Bonds being issued by notable banks in this country. The subscribers of these bonds mainly were Insurance Companies, Foreign Portfolio Investors, Pension and Provident Funds & Mutual Funds etc.
The main idea was to raise money to finance these infrastructural projects. These bonds were made completely tax-free to bolster the subscription. But mind you, these bonds were not open to the public or the retail investors. These were mostly for corporates looking to meet their ESG goals and foreign investors hoping to get a good return on the money put in. Most of these bonds were well subscribed and India was receiving substantial funding in this field.
Now coming to green fixed deposits- In principle, it is similar to a regular fixed deposit but the only difference is in the use of the money raised from these deposits. The money raised from these deposits would be used to finance projects in the field of renewable energy, green transport, energy efficiency, sustainable agriculture, waste management etc. Simply put, the bank will take money from you and lend it out to companies requiring funds to build green or sustainable projects. The bank makes a commitment to you to only use these funds for green projects and also releases quarterly reports mentioning all the projects that it has used your money to finance.
Yes Bank was one of the first banks in the country to launch Green Deposit products for its customers. Back in 2018, Yes Bank launched the 18 months Green FD scheme for individuals which had an interest rate of 7.5% for individuals and 8% for senior citizens. HDFC launched their own green deposit program for citizens and NRIs in August 2021. The idea was to direct the deposits to finance sustainable and green housing credit solutions and services.
December 2021 saw IndusInd bank foraying into green deposit products. They launched the IndusInd green deposits for both retail and corporate customers. The money raised from these deposits would be used to finance projects which support the UN’s Sustainable Development Goals.
Currently, for retail customers, there are only 4 banks that are offering Green FDs. You can check them out below:
|Federal Bank||5.75%||Federal Bank green deposits|
|HDFC Bank||5.35-6.70%||HDFC Green and sustainable deposit|
|IndusInd Bank||Upto 6.50%||IndusInd bank green deposits|
|Union Bank of India||5.50%||NA|
An important thing to note here in the above table is that the rates mentioned are as of April 2022. Most of these banks are working on updating the schemes with higher interest rates after RBI’s rate hikes.
In August 2020, HSBC became the first foreign bank in India to issue green deposits for its corporate clients. This would allow its clients to support eco-friendly projects. It was a win-win for everyone as the corporates having a sustainability agenda could get an easy avenue to invest their money and be on the good books without having to do much. DBS India also joined the wagon when it launched the green deposits for corporates & institutes in March 2022.
Now the question is whether you should go for a Green FD or not. First, let’s look at the risks involved. High inflation in the economy generally makes FDs a bad choice for investment as the real return may be negative in case the inflation beats the interest rate offered by the FD. Though the RBI is trying to control the inflation by increasing the repo rate, it is still to be seen whether the FDs get a real return or not.
Secondly comes the question of opening a new bank account for the green FDs. Not all banks are offering FDs currently so if you don’t have an account in the banks offering green FDs, you’ll have to open one. Opening a bank account may not be a tedious process anymore with the onset of digital banking etc. but you need to be comfortable with the new bank before taking any such decision.
As interest rates continue to rise with the RBI trying to control inflation, it’ll be more suitable to invest in short-term FDs rather than having your money locked up in long-term deposits. The good news is that most of these deposits are backed by insurance for investments up to Rs.5 Lakhs and the minimum tenure is around 18 months. Green fixed deposit is a great tool for you to participate in India’s journey to becoming carbon-neutral. However, you must be convinced to put your money into it and look for the right time to invest.
More banks will foray into it and in the near future, you’ll have more options in this space to invest in. Even if you’re not ready to put in your money at the moment, green FDs or investing in green projects should always be an option for you going ahead. With the onset of climate change and global warming, most of us may not be able to directly contribute but these tools do make it easy for us to play a role in combating it.
Having 2-5% of green investments in your portfolio may prove to be of substantial value if everyone chips in a little. We may just cross 140GW of installed renewable energy capacity by the end of 2022, well short of the 175GW target, but we have covered a substantial length in reaching our net-zero target. To support it further, it may require your contribution to facilitate more projects. If you think you gained some knowledge on green fixed deposits after reading this and would like to receive more such content, do follow us!