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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