The Centre may tweak sovereign green bond issuances if the ‘greenium’ to be offered on such bonds in FY24 is not attractive, a senior government source said.
For the first time, the Centre mobilised Rs 16,000 crore through two tranches of green bonds in January-February.
The government was not exactly happy with the outcome as it wanted a higher ‘greenium’ or cost advantage to the issuer compared to conventional bonds.
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The government will float green bonds close to Rs 24,000 crore in the second half of the current fiscal.
“The market has to show its continued interest in green bonds. We will see the benefit to the government in the coming tranches and then we will take a call on how to go thereafter,” the source said.
The 2-4 bps premium was not even enough to cover the additional costs the issuer would incur on compliances such as certification, end-use monitoring and additional disclosures.
Analysts said the difference in the funding cost or greenium should be 25 to 30 basis points compared with normal bonds.
Despite lower returns, many foreign investors set aside funds for investing in green projects as part of their ESG obligations.
As sustainability disclosures by companies grow, such information could be used by banks, credit rating agencies and other financial institutions, along with financial information to assess the credibility of a business.
The response from foreign investors to the last green bond issuances were not that great, probably due to distractions over Ukraine war and the global slowdown.
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“We are the largest market for green projects and it makes sense for foreign investors to engage with India,” the source said.
However, the Centre will not offer any tax incentives for green bonds.
In India, there is no regulatory mandate for financial institutions that would require them to invest a portion of their assets in such bonds. Hence, they are not obliged to invest in green bonds at relatively high greeniums.