Green bonds
Context: Cost of green bonds issuance high in India
- The average coupon rate for green bonds issued since 2015 with maturities between 5 to 10 years have generally remained higher than the corporate and government bonds with similar tenure.
- For the US dollar-denominated green bonds with tenure of more than or equal to 10 years, the coupon rate was, however lower than the corporate bonds.
- Most of the green bonds in India are issued by the public sector units 17 or corporates with better financial health.
- Private sector issuers of green bonds, on average, reported lower debt-to-assets ratio compared to the non-issuers of green bond.
- Green bonds constituted only 0.7percent to fall the bonds issued in India since 2018, and bank lending to the non-conventional energy constituted about 7.9 percent of outstanding bank credit to the power sector, as of March 2020.
- High borrowing cost has been perhaps the most important challenge and analysis indicates that it could be due to the asymmetric information
- Therefore, developing a better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in this segment.
Green bonds
- A green bond is a fixed-income instrument designed specifically to support specific climate-related or environmental projects.
- Green bonds typically come with tax incentives to enhance their attractiveness to investors.
- The World Bank issued the first official green bond in 2009.
- Around $157 billion worth of green bonds were issued in 2019.
- Dating back to the first decade of the 21st century, green bonds are also referred to as climate bonds.
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