Banks Seek CRR Cut on Green Deposits:
In a significant move to accelerate India’s transition towards a net-zero economy, public sector banks have approached the Reserve Bank of India (RBI) seeking a reduction in the Cash Reserve Ratio (CRR) applicable to green deposits.
- Banks have advocated for an initial CRR reduction of up to 100 basis points (1%) on green deposits to make green lending cheaper and prioritize it as a preferred credit option.
- Despite growth, green deposits raised in 2025-26 were only around Rs 4,000-5,000 crore, which is significantly below the critical mass required to fund India’s climate goals.
- According to the NITI Aayog report ‘Scenario towards Viksit Bharat & Net Zero – Financing Needs’, India requires a massive USD 22.7 trillion in cumulative investment to successfully achieve its net-zero transition.
- A lower CRR would reduce funding costs and free up capital, compensating banks for the higher compliance costs incurred in continuous project evaluation to prevent greenwashing (misuse of green funds).
- To ease the burden on domestic banks and NBFCs, India must finalize its under-development climate finance taxonomy and create a coordinated regulatory environment to attract long-term global capital.
- A green deposit is an interest-bearing deposit received by a regulated entity (such as a bank or an NBFC) for a fixed period.
- The proceeds from these deposits are earmarked strictly for allocation towards eligible green projects.
- Under the RBI Green Deposit Framework 2023, funds must be used for sectors like renewable energy, waste management, clean transportation, climate change adaptation, and energy efficiency.
- Green Deposits differ from Green Bonds, which are debt securities issued to raise funds for eligible green projects.
Cash Reserve Ratio (CRR):
- CRR is the percentage of a bank’s Net Demand and Time Liabilities (NDTL) that must be maintained as cash reserves with the RBI.
- Banks do not earn any interest on the money parked with the RBI under the CRR mandate.
- A high CRR drains excess liquidity from the banking system, reducing the banks’ lending capacity. Conversely, a lower CRR frees up capital, allowing banks to lend more money to borrowers.
