A green bond is a debt instrument designed specifically to support specific climate-related or environmental projects.
They are used to finance projects aimed at sustainable agriculture, pollution prevention, fishery and forestry, clean water and transportation , environment friendly water management projects.
Companies who wish to raise the money from Green projects .
Interesting Fact : The first official Green Bond was issued in the year 2009 by World Bank.
In order to enhance the attractiveness of Green Bonds , they usually come with tax incentives.
Reserve Bank of India (RBI) has published a study which states that the cost of issuing ‘Green Bonds’ remained on a higher side as compared to the rest of the bonds in India due to the asymmetric information.
The study states that the Green Bonds comprises only 0.7% of all the bonds issued in India since 2018.
As of March 2020, bank lending to renewable energy comprised 7.9% of the balance band credit to the power sector.
In India, the public sector units or corporates issue most of these bonds which indicate better financial health.
The Green Bonds have higher coupon rates as compared to the corporate government bonds with identical tenure.
Asymmetric information or information failure along with a high coupon rate are the major governing factors behind high borrowing costs.
A sound information dissemination system is actually in need of these times as it could help in minimising the maturity mismatches, borrowing costs and as a result may cause efficient resource allocation.
Green Bonds improves the issuer's reputation and highlights its dedication to sustainable development.
They usually have a lower interest rate as compared to the loans offered by the commercial banks.
Foreign Investors are aiming more on green Investments which, as a result, may help in minimizing the cost of raising capital.
They have been significant in raising finance to sunrise sectors such as renewable energy, which can contribute to their sustainable growth.
In 2018, the State Bank of India (SBI) ventured into the Green Bond market with a $650 million certified climate bond.
In the first half-year of 2019, India became the second-largest Green Bond market worldwide after China with $10.3 billion worth of transactions, according to the Economic Survey 2019-20.
In October 2019, India entered the International Platform on Sustainable Finance (IPSF) for increasing its environment-friendly Investments.
The projects focused on by green bond issuers are questionable. It has been observed that most of the times the green bonds proceeds are being mobilized to finance projects that hurt the environment.
There's a paucity of credit ratings or rating guidelines for Green projects or Green Bonds.
Green Bonds in India are of 10 years duration while the typical loan is of minimum 13 years. Moreover, green projects need maximum time to propel returns.
State Bank of India
JSW Hydro Energy
Indian Railway Finance
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