What are green deposits and how do they work?

While the underlying operability of these deposits is the same as regular deposits, there is a difference in the objective with which these deposits are raised by financial institutions from customers. Herein, the proceeds from the deposits are to be deployed for some of the eco-friendly projects. So, in essence, customers are offered a unique combination of fiscal security together with ethical investing.

With the offering and, finally, by booking such green deposits, investors other than the interest accrual part will be able to make meaningful contributions in the environmental sphere, making a tangible impact on the global climate crisis. 

Projects that are tapped for the underlying objective

Projects for the purpose can range from pollution reduction, renewable energy, sustainable farming practices, and various initiatives that aim at lowering the carbon footprint. ‘

Who can invest in Green deposits?

Individuals, HUFs, sole proprietorships, entities representing societies, etc. can all invest in these green deposits.
Proceeds unallocated to such green projects are to be put into liquid securities.

As per the RBI’s guided framework, funds will be put into liquid instruments with a maturity of up to one year only. These liquid instruments are level 1 high-quality liquid assets as per the RBI guidelines. Also, the recently released RBI framework on the instrument suggests that the regulated entity shall not be charged any penalty for the non-allocation of proceeds towards green projects.

Experts take on Green deposits 

While some experts see the instrument as a way of greenwashing, others maintain that striking a balance between risk assessment, higher returns, and operational efficiency shall be crucial in growing the area of green financing in the country. 

Amar Ranu, Head - Investment products & insights, Anand Rathi Shares and Stock Brokers on the investment opportunity remarked that even though they are still in the early stages, these deposits have the potential to become banks' primary sources of funding. Additionally, since the RBI has permitted them to be classified as Priority Sector Lending, banks will have an easier time pushing for more Green Deposits. 

Since these deposits are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), deposit holders will eventually find that these deposits are accepted more readily.

In keeping with the government's goal of massive green financing, the RBI's decision to allow banks to deposit green money is a positive step. Big climate or environmental projects, such as building green buildings, creating infrastructure for renewable energy, creating sustainable transportation systems, and many more, would result in a huge demand for green financing from the organizations carrying them out., the expert added./