Why in News?
According to the Reserve Bank of India(RBI), the cost of issuing green bonds in India has generally remained higher compared to other bonds. It is largely due to asymmetric information.
About Green Bonds:
- It is a debt instrument just like any other normal bond, issued by an issuer for raising funds.
- The only difference is that these instruments are designed specifically for funds to support specific projects benefitting the environment.
- Green bonds typically come with tax incentives to enhance their attractiveness to investors.
- The World Bank issued the first official green bond in 2009.
Green Bonds in India:
- Yes Bank was the first Indian Bank to issue Green Infrastructure Bonds (GIBs) in India in 2015.
- SEBI has allocated the following eight categories with the tag of green projects:
- a) renewable energy b) clean transportation c) sustainable water management d) climate change e) energy efficiency f) sustainable waste management and g) land use and h) biodiversity conservation.
Issues with Green Bond in India:
- Green bonds constituted only 0.7% of all the bonds issued in India since 2018.
- As of March 2020, Bank lending to renewable energy constituted 7.9% of outstanding bank credit to the power sector.
- The average coupon rate for green bonds in India with maturities between 5 to 10 years has generally remained higher than the corporate and government bonds with similar tenure.
- Better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in Green Bonds.