SBI in Talks with RBI to Lower CRR

State Bank of India (SBI) is currently engaged in discussions with the Reserve Bank of India (RBI) to reduce the cash reserve ratio (CRR) requirement on green deposits, according to SBI Chairman Dinesh Khara.

Last month, SBI introduced a green deposit scheme, a first in domestic banking, aimed at attracting long-term retail deposits specifically for funding green transition projects or climate-friendly initiatives. These green deposits are priced 10 basis points lower than regular deposit rates.

The CRR is the minimum amount of cash that banks must keep reserved with the central bank against their total deposits. Currently set at 4.5 percent, the CRR ensures that a portion of every rupee collected in deposits is parked with the RBI as a solvency measure, without earning any interest for the banks.

Khara stated, “We are engaging with the regulator for a reduction in the CRR for green deposits. It may take two to three years to start having an impact on pricing.” He also highlighted the need for better and more practical rating for green financing to prevent greenwashing.

SBI has begun evaluating borrowers based on environmental, social, and governance rating. The bank’s green rupee fixed deposit scheme, launched last month with tenors of 1,111, 1,777, and 2,222 days, offers interest rates around 10 basis points lower than prevailing rates on similar tenors of regular fixed deposits.

The RBI’s framework for accepting fixed deposits, in effect since June 2023, requires financial institutions to raise green deposits before financing green projects. The proceeds from these deposits can be invested in liquid instruments with up to one year maturity.