RBI's Draft Guidelines on Green Deposits: What It Means for FD Investors

The Reserve Bank of India released draft guidelines on 15 January 2026 proposing a formal framework for "green deposits" — a new category of term deposits at banks and NBFCs where the mobilised funds are exclusively allocated to environmentally sustainable projects. The proposal is open for public comment until 31 March 2026, with a likely implementation date of July 2026.

How Green Deposits Would Work

Under the proposed framework, scheduled commercial banks and eligible NBFCs can offer green deposits with minimum tenures of one year. The funds raised through these deposits must be deployed exclusively into a defined list of green activities: renewable energy projects, energy efficiency improvements, clean transportation, sustainable water and waste management, green buildings, and climate change adaptation infrastructure. Banks must maintain a separate ledger for green deposit funds and publish quarterly utilisation reports verified by an independent third-party assessor.

The interest rate on green deposits would be determined by the issuing bank, and the RBI has clarified that these deposits would carry the same Deposit Insurance and Credit Guarantee Corporation (DICGC) coverage of Rs 5 lakh per depositor per bank as regular FDs. Premature withdrawal penalties and other terms would also mirror standard FD conditions.

Will Green Deposits Offer Higher Returns?

The draft guidelines do not mandate any specific rate premium for green deposits. However, early indications suggest that banks may offer marginally higher rates — 5 to 15 bps above their standard FD rates — as a marketing incentive to attract environmentally conscious depositors. SBI, which has been at the forefront of green financing with its green bond programme, is expected to be among the first movers, potentially offering one-year green deposits at 6.85% compared to its standard 6.70% rate.

Globally, green deposits have followed a mixed trend. In Europe, several banks initially offered premium rates on green deposits, but as the product matured, the differential narrowed to negligible levels. The primary appeal of green deposits in India is likely to be philosophical rather than financial — depositors who care about the environmental impact of their savings will find this product category attractive regardless of minor rate differences.

Tax Treatment and Regulatory Protections

Green deposits will be taxed identically to regular fixed deposits — interest earned is fully taxable at the depositor's marginal income tax slab. TDS of 10% will apply on interest exceeding Rs 40,000 per year (Rs 50,000 for senior citizens). There is no additional tax benefit or exemption for green deposits under the current Income Tax Act provisions. The RBI has indicated it will liaise with the Finance Ministry on potential tax incentives, but nothing has been confirmed.

The framework includes important investor protection mechanisms. Banks cannot unilaterally reclassify funds from green to non-green portfolios. If a bank fails to deploy at least 80% of green deposit funds into qualifying projects within 12 months, it must refund the deposits with a penalty interest of 50 bps above the contracted rate. Third-party verification of fund utilisation ensures accountability and prevents greenwashing.

Should You Consider Green Deposits?

From a pure financial return perspective, green deposits are unlikely to be significantly different from regular FDs. The decision to opt for them should be driven primarily by your values and the desire to ensure your savings fund sustainable projects. If you are comparing green FDs from banks versus green bonds from entities like the Solar Energy Corporation of India, note that bonds may offer slightly higher yields but come without DICGC insurance and carry credit risk.

For the environmentally minded investor who prioritises capital safety, green deposits offer a structured, regulated, and insured avenue to align savings with sustainability — something that has not existed in the Indian banking system until now. Monitor the final guidelines expected in Q2 2026 and compare rates across banks using the FD calculator before making a decision.