RBI Notifications

Discussions to lower CRR on Green Deposits


From UPSC perspective, the following things are important :

Prelims level: Green Deposits

Mains level: Read the attached story


  • 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.

What are Green Deposits?

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

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.

Distinguishing Green Deposits from Normal Deposits

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

Back2Basics: Cash Reserve Ratio (CRR)

  • Banks are mandated to maintain a certain portion of their deposits and specific liabilities in liquid cash with the RBI.
  • CRR serves as a crucial tool in the RBI’s arsenal for managing liquidity in the economy and acts as a safety net during times of banking stress.
  • Currently, banks are required to uphold 4.5% of their Net Demand and Time Liabilities as CRR with the RBI.
  • Incremental-CRR was introduced on August 10, 2023, as a temporary measure by RBI to absorb surplus liquidity.
  • Banks were required to maintain an I-CRR of 10% on the increase in their Net Demand and Time Liabilities (NDTL) between May 19, 2023, and July 28, 2023.
  • It came into effect from the fortnight starting August 12, 2023.
  • ICRR is employed during periods characterized by excess liquidity in the financial system.

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