Green Bonds

Recently, the Reserve Bank of India has reported that the cost of issuing Green Bonds is higher than other bonds.

  • The average coupon rate for green bond with a maturity period between 5 and 10 years issued after 2015 is generally higher than for corporate and government bonds.
  • However, the coupon rate for green bond of 10 years or more for the US dollar was lower than corporate bonds.

Key Facts:

  • It is known that most of the green bond in India are issued by public sector units or corporate with better financial condition.
  • Private sector green bond issuers provided less information on debt-to-asset ratios than its non-issuers.
  • As of March 2018, green bonds were only 0.7% of the total bonds issued in India, while according to 2020 data, bank loans given for non-conventional energy account for 9% of bank dues on the energy sector.
  • High borrowing costs have been the most important challenge in this and this was mainly due to asymmetric information.
  • In this context, a better information management system needs to be developed in the country, which will help in reducing the maturity period mismatch and cost borrowing and efficient resource allocation in this area.

Green Bond:

  • Green bonds are like other bonds, but through these only investments can be made in green i.e. environmentally friendly projects.
  • These include projects such as renewable energy, low carbon emissions, clean transportation and adaptation to climate change.
  • The bonds were first introduced in 2007 by the World Bank and the European Investment Bank.
  • The first green bond in India were issued by Yes Bank in the year 2015.

Source – The Hindu

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