SBI in talks with RBI to lower CRR on green deposits

Subject: Economy

Section: Monetary Policy

Context:

The State Bank of India (SBI) is in talks with the Reserve Bank of India (RBI) to reduce the cash reserve ratio (CRR) requirement on green deposits.

About Green Deposits

Green deposits are fixed-term investments tailored for individuals and entities seeking to support environmentally friendly initiatives.
These deposits align with the principles of Environmental, Social, and Governance (ESG) investing, reflecting a growing trend towards sustainable finance.
Funds from green deposits are directed towards projects promoting renewable energy, clean transportation, pollution control, green infrastructure, and sustainable water management.

Green Deposits Vs Normal Deposits

Green deposits allocate funds to specific environmentally friendly projects, unlike regular deposits.
Interest rates on green deposits are determined by lenders and are currently comparable to those offered on conventional deposits.

RBI Framework for Green Deposits

Preventing Greenwashing: The RBI’s framework ensures transparency in environmental claims associated with green deposits.
Deposit Options: Banks offer green deposits denominated in rupees, with choices between cumulative or non-cumulative options.
Applicability: Scheduled commercial banks, small finance banks, non-banking financial companies (NBFCs), and housing finance companies (HFCs) must comply with this framework.
Eligibility: Both corporate entities and individual customers can invest in green deposits, contributing to environmentally sustainable initiatives.
Allocation: Funds mobilized through green deposits are directed towards sectors such as renewable energy, waste management, and afforestation.
Restrictions: Lenders are prohibited from channelling green deposit funds into sectors like fossil fuels, nuclear power, or tobacco.
Verification: Independent Third-Party Verification is conducted annually to assess the allocation and impact of funds raised through green deposits.
Oversight: Lenders are required to review the impact of funds lent for green finance activities on an annual basis.
Penalties: There are no penalties for underutilization of funds raised through green deposits, providing flexibility to financial institutions.