Background and Context
India's transition towards a net-zero economy requires massive capital deployment, with the NITI Aayog report 'Scenario towards Viksit Bharat & Net Zero - Financing Needs' estimating a cumulative investment requirement of USD 22.7 trillion to successfully achieve net-zero transition.
Current State of Green Deposits
- Green deposits raised in 2025-26: Rs 4,000-5,000 crore
- This amount is significantly below the critical mass required to fund India's climate goals
- The gap indicates insufficient mobilization of domestic savings for green projects
The Proposal
Public sector banks have advocated for:
- Initial CRR reduction of up to 100 basis points (1%) on green deposits
- Making green lending cheaper as a preferred credit option
- Compensating banks for higher compliance costs incurred in project evaluation
Understanding Green Deposits
Definition
A green deposit is an interest-bearing deposit received by a regulated entity (bank or NBFC) for a fixed period, with proceeds earmarked strictly for allocation towards eligible green projects.
Eligible Sectors (RBI Green Deposit Framework 2023)
- Renewable energy projects
- Waste management initiatives
- Clean transportation
- Climate change adaptation
- Energy efficiency measures
Green Deposits vs Green Bonds
| Aspect | Green Deposits | Green Bonds |
|---|---|---|
| Nature | Interest-bearing deposits | Debt securities |
| Purpose | Fund eligible green projects | Fund eligible green projects |
| Investors | Depositors | Bondholders |
Cash Reserve Ratio (CRR) - Key Concepts
Definition
CRR is the percentage of a bank's Net Demand and Time Liabilities (NDTL) that must be maintained as cash reserves with the RBI.
Key Features
- No interest earned: Banks do not earn any interest on CRR balances parked with RBI
- Liquidity impact: High CRR drains excess liquidity from the banking system
- Lending capacity: Lower CRR frees up capital, enabling more lending
Rationale for CRR Cut
- Reduce funding costs for banks offering green deposits
- Free up capital that can be redirected to green lending
- Compensate compliance costs against greenwashing (misuse of green funds)
- Attract long-term global capital by creating coordinated regulatory environment
Challenges and Recommendations
Current Challenges
- Limited green deposit mobilization
- Higher compliance costs for banks
- Need for continuous project evaluation
- Risk of greenwashing in green financing
Recommendations
- Finalize India's under-development climate finance taxonomy
- Create coordinated regulatory environment
- Ease burden on domestic banks and NBFCs
- Attract foreign institutional investment
Constitutional and Regulatory Framework
- RBI Act, 1934: Governs CRR requirements
- RBI Green Deposit Framework, 2023: Sets guidelines for green deposits
- SEBI Green Bond Guidelines: Related securities framework
- Sustainable Finance Taxonomy: Under development for India