In pursuit of attaining the net zero emissions goal by 2070, the Reserve Bank of India (RBI) projects that India’s overall expenditure for climate change adaptation will likely amount to ₹85.6 lakh crore by 2030. In alignment with efforts to strengthen green financing initiatives, the RBI introduced a framework for the acceptance of green deposits in April last year.

Green deposits have been introduced to mobilise funds for projects aligned with the United Nations’ 17 sustainable development goals. Leading the way in this endeavour, the State Bank of India (SBI), the country’s largest bank in terms of assets, has unveiled its green deposit scheme, known as the SBI Green Rupee Term Deposit (SGRTD).

What are the deposits about?

SGRTD is offered in three primary tenures: 1,111 days, 1,777 days, and 2,222 days. Investment can be made only by visiting the branch. The interest rates on offer for these deposits are 6.40 per cent for 2,222 days and an additional 25 basis points (0.25 per cent) for the other two tenures, offering an interest rate of 6.65 per cent for deposits up to ₹2 crore. While the bank’s website does not currently specify the interest pay-out options for this deposit, a bank representative confirmed that the pay-out options for regular fixed deposits (FDs) will also apply to this deposit.

For senior citizens, SGRTD presents an added benefit of 50-100 basis points interest across all tenures, reaching a maximum interest rate of 7.4 per cent per annum for the 2,222-days tenure. The minimum amount required to open a green deposit is ₹1,000. Green deposits are open to resident individuals, institutional clients, and NRI customers.

Pros and Cons  

SBI entered this specific deposit category later than several other domestic banks, including HDFC, IndusInd, DBS, Federal, AU Small Finance Bank, and global banks such as HSBC and Citibank, which had already established their presence. Despite this, SBI stands out positively by offering the lowest minimum deposit amount and welcoming a diverse range of clients, including residents, institutions, and NRIs. For instance, HDFC Bank requires a minimum deposit of ₹40,000, while Citibank restricts its green deposits to institutional clients.

In the current high-interest rate environment, nearly all banks, small finance banks (SFBs), and non-banking financial institutions (NBFCs) with similar tenures provide FDs with a minimum interest rate of 7 per cent for retail depositors across all age groups. In contrast, SGRTD offers rates exceeding 7 per cent exclusively to retail deposits made by senior citizens (aged 60 and above). For the rest, the maximum rate offered by SGRTD is 6.65 per cent only.

When focusing on green deposits (GDs), private sector banks like HDFC and IndusInd offer attractive rates of up to 7.55 and 7.75 per cent, respectively, with an additional 25 and 50 basis points for senior citizens. It is noteworthy that HDFC Bank provides an additional 0.10 per cent interest for online bookings of deposits up to ₹50 lakh per calendar month.

If we consider the investment period as the sole factor, then the AU Small Finance Bank’s Planet First – AU Green Fixed Deposit offers the highest rate for the shortest tenure compared to other GDs. For instance, for 12 months-one day tenure, it offers an interest rate of 7.75 per cent. Furthermore, the deposit comes with a DICGC cover of ₹5 lakh, making it a secure choice for investors. Finally, it should be noted that green deposits have no tax incentives. Interest earned is added to your income and taxed at the applicable slab.

Should you go for them?

At present, interest rates are close to their peak level. Though not on the anvil immediately, rate cuts are expected towards the end of this calendar year as the RBI starts easing its monetary policy. Considering that SGRTD’s rates are comparatively lower than the other options, depositors may choose to explore alternative opportunities within the above-mentioned banks to lock in on the rates for the medium to long term. If there is still a surplus after all investments, you can consider parking small sums in SBI’s green deposits.

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