Environmental enthusiasts would sure agree that it pays to go green. But it doesn’t pay well for investors of these curated fixed deposits. Trying to lure investors who would love to go green, banks and even NBFCs have launched deposits that appeal to the Environmental Social and Governance (ESG) theme.
While HDFC launched its Green & Sustainability deposit in August last year, IndusInd Bank launched its green deposits in the last week of December 2021. Union Bank, too, offers a fixed tenure Green Deposit that can be applied for, through the bank’s mobile banking application (U-mobile app).
That said, these deposits don’t seem attractive, across tenures, given that there are many other fixed deposit options offering higher returns, both from banks and non-banking financial companies (NBFCs) that investors can consider. With interest rates expected to move up, investors can go for these normal 1–2-year deposits (and not very long-tenure ones) to benefit from a potential rate hike.
What is on offer?
Green deposits are aimed at those who wish to create a positive impact on the environment through their investments. IndusInd and HDFC for instance, will deploy the proceeds from their Green FDs in organisations supporting the United Nations Sustainable Development Goals – across sectors such as Energy efficiency, green transport, renewable energy and waste management, to name a few. Similarly, funds from Union Bank’s Green Deposits would be utilised for environment-friendly projects. The bank went a step further in environment conservatism by offering these FDs in online only mode.
Union Green Deposits comes with a fixed tenure of 1111 days (a little longer than three years) and currently offers interest at the rate of 5.5 per cent per annum. Seniors get an additional 0.5 per cent.
HDFC’s Green & Sustainable Deposits range from tenures of 24 to 120 months, with an option to pay interest at monthly, quarterly, half-yearly or annual rests. One can even opt for a cumulative payout at the time of maturity. Currently these deposits offer 5.75 to 6.6 per cent per annum across the abovementioned tenures for annual payout and for cumulative options. Rates for more frequent payouts are lower.
IndusInd Bank offers the green deposits for tenures ranging from two years to 61 months, offering interest at 6 per cent across tenures (seniors get an additional 0.5 per cent).
While these FDs can help create a ‘feel good’ factor about your portfolio fulfilling ESG needs, they don’t seem attractive from returns standpoint. If generating superior returns is your goal, there are other lucrative options for FD investors.
How they fare?
At this juncture, locking into deposits with tenure greater than two years may not be a wise choice, given that the interest rates are likely to inch up going ahead.
For tenures of just above two years, while PSU banks offer interest in the range of 4.9 to 5.3 per cent per annum, private banks such as DCB Bank (up to 5.95 per cent), RBL Bank and YES Bank, offer up to 6 per cent. Small finance banks (SFB) offer slightly higher rates —- up to 6.6 per cent for tenures just above 2 years and can be a good option. Bank deposits (including that of SFBs) worth up to ₹5 lakh are covered by Deposit Insurance and Credit Guarantee Corporation (DICGC). Union and IndusInd’s green FDs lose out from returns perspective. HDFC’s best rates of over 6 per cent are offered for longer tenures which are not advisable at this juncture.
That said, investors with an appetite for risk can even consider FDs offered by other AAA-rated NBFCs, that offer superior returns. Shriram Transport Finance (whose FDs are rated FAAA by CRISIL), for instance, offers interest at the rate of 6.75 per cent on its 24-month deposits.