State Bank of India (SBI) chairman Dinesh Khara said on Friday that the bank is currently in discussions with the Reserve Bank of India (RBI) regarding a potential reduction in the cash reserve ratio (CRR) requirement for green deposits.
SBI had introduced a green deposit scheme last month, marking a significant initiative in the domestic banking sector. The scheme aims to attract long-term retail deposits specifically designated to fund green transition projects or climate-friendly initiatives.
Under the green deposit scheme, SBI offers interest rates that are 10 basis points lower than regular deposit rates. Currently, the CRR stands at 4.5 per cent, requiring banks to maintain a certain portion of their deposits with the RBI as a solvency measure, without earning any interest on these reserves.
"We are engaging with the regulator for a reduction in the CRR for green deposits, and secondly, if at all as a policy, it can be incorporated into the regulator policy mechanism. Early beginning has happened from the regulator's side also, but maybe it will take two to three years to start having an impact on the pricing too," Khara said at an event organised by the Indian Institute of Management Kozhikode.
Khara emphasised the importance of practical and reliable ratings for green financing, expressing concerns about potential greenwashing. He mentioned that SBI is engaging with rating agencies to explore the possibility of establishing an accounting standard for green financing. Additionally, SBI has begun evaluating borrowers based on environmental, social, and governance (ESG) ratings.
Regarding the history of negotiations between SBI and the RBI, Khara noted that his predecessor, Pradip Chaudhary, had previously sought interest payments from the RBI on deposits held under the CRR.
SBI's green rupee fixed deposit scheme, introduced last month, offers various tenors with interest rates approximately 10 basis points lower than the prevailing rates on regular fixed deposits of similar tenors. The RBI has implemented a framework for accepting fixed deposits since June 2023, requiring financial institutions to prioritise raising green deposits before financing green projects. The proceeds from green deposits can be invested in liquid instruments with a maturity of up to one year.
