What are green deposits?

As the name goes, deposits raised under this banner should be deployed towards projects earmarked for green financing. Green financing is lending to or investing in projects which contribute towards climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives including biodiversity management and nature-based solutions.

Read also: RBI unveils framework for acceptance of Green Deposits

How are they different from normal deposits?

Normally, deposits cannot be allocated for specific projects. They go towards the common deployment pool. With green deposits, they are carved out specifically towards green financing. This is the biggest difference between the two. This apart, all the rules applicable to normal deposits will be applicable to green deposits. For instance, upon maturity, the depositor has the option to redeem or carry forward the deposit.

Will the interest rate on green deposits differ from regular deposits?

This can be at the prerogative of the lender. A few banks and NBFCs such as IndusInd Bank, Federal Bank, DBS Bank India and HDFC Ltd are already offering green deposits. At present the rates on these deposits aren’t significantly different from regular deposits. 

Citibank and HSBC globally offer green deposits. They price these deposits at a slightly lower rate (0.25-0.75 per cent).  Typically investments with ESG mandate earn slightly lower returns for investors.

Which category of savers are green deposits targeting?

Every category of depositors — whether retail or institution — can avail of green deposits. There is a growing preference towards ESG rated products and green deposits would be a good fit to investors seeking such options.

More read: Should you go for green FDs?

What are the avenues where these funds can be deployed?

As per the RBI guidelines, green deposits can be used to fund projects addressing renewable energy, energy efficiency, clean transportation including electric vehicles, climate change adaption, sustainable water and waste management, pollution control terrestrial and aquatic biodiversity conservation, and so on. The list is comprehensive and exhaustive.

Can depositors know about the utilisation of these deposits?

Yes, and the regulator has ensured that there is transparency in these products. Entities raising green deposits should put in place a ‘financing framework’. It is a board approved document entailing how projects will be selected for green financing and carry details on allocation towards these projects and this information should be published on their websites. An external reviewer should validate the framework and opinion of the reviewer should also be put out on the website of the lender.

What’s interesting is the mandatory third-party verification of the allocation and utilisation of the green deposits. This is aimed at assurance and impact assessment to ensure end-use utilisation of these deposits. With ample checks and balances, investors looking for green deposits can be assured that their money is being spent for the intended purpose.

What happens when the bank doesn’t utilise the deposits?

There are no penal provisions. However, since these deposits are transparent in terms of utilisation, if funds are not adequately deployed by a bank, depositors may not be very forthcoming to invest in green deposits of the bank.

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