SBI in talks with RBI for relaxation in CRR requirement for green deposits

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State Bank of India has approached the RBI seeking relaxation in the Cash Reserve Ratio (CRR) requirement for green deposits, which are long-term deposits used to fund green or climate-friendly projects. “We have put across the ask. One, of course, is a reduction in CRR for green deposits and second, if at all as a policy, it can be incorporated (into the regulatory policy mechanism),” SBI Chairman Dinesh Kumar Khara said at an event by NSE and Indian Institute of Management Kozhikode (IIM-K).

CRR is the minimum cash banks needs to reserve with the regulator, against their total deposits. Currently, the CRR is at 4.5 per cent, with no specific requirement for green deposits. “Early beginning has happened from the regulator’s side but it may take 2-3 years to start having an impact on the pricing too,” Khara said, adding that he expects such deposits to be priced around 10 bps lower than normal deposit rates.

Green FD scheme

RBI, in June 2023, allowed bank to accept green fixed deposits to finance such projects. Last month, SBI had launched a green fixed deposit (FD) scheme with three varying tenures — 1,111, 1,777 and 2,222 days. Rates on these deposits are around 10 bps lower than rates on regular FDs with similar tenors. In December 2023, the PSU bank had raised $250 million via senior unsecured green floating rate notes maturing in December 2028.

Accounting standard

Khara said that the bank is also engaging with rating agencies and bodies such as Institute of Chartered Accountants of India to put in place an accounting standard for green financing, so as to ensure a better, reliable and more practical rating mechanism and avoid instances of potential greenwashing in the name of green financing.

“The green component is to be captured across organisations. There will be a need for its auditing since those who are sources for green funding will like to have some credible numbers. SBI is also engaging with some entities to see if an accounting standard can be set for green financing,” he said. 

SBI has already started evaluating borrowers based on their environmental, social and governance (ESG) ratings, and is sharing this information with them to enhance awareness, he said, adding that the bank has also requested RBI to nudge and help the banking system.

While SBI is currently not pricing loans based on ESG parameters, they will start impacting pricing in 2-3 years, he said.