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Informist, Wednesday, Aug 28, 2024

 

--RBI Das: Green bond, deposit frameworks face significant challenges 

--RBI Das: Scalability a challenge for green bond, green deposits 

--RBI Das: Market for green bond needs to expand significantly 

 

MUMBAI – The frameworks for green bonds and green deposits has faced challenges for multiple reasons despite their benefits towards sustainability, Reserve Bank of India Governor Shaktikanta Das said today. The market for green bonds needs to expand significantly as scalability remains a major challenge, Das said. This will attract larger set of issuances and a diverse set of investors, he said. 

 

Talking about how technology can help tackle this, Das said, "Ensuring authenticity and impact of green projects, financed through these frameworks, requires robust monitoring and reporting mechanisms. Technology can play a pivotal role in overcoming these challenges."

 

In an effort to attract more investors, the Reserve Bank of India is also discussing modalities with International Financial Services Centre on trading of sovereign green bonds at the Gujarat International Finance Tec-City, Gandhinagar.

 

GIFT-IFSC is a deemed foreign jurisdiction set up by the government to boost foreign investments in Indian assets, and only foreign portfolio investors can invest through this route. Investors stand to gain in terms of tax treatment at GIFT-IFSC as the interest on debt instruments is taxed at a lower rate of 9% compared with such income of foreign portfolio investors being taxed at India's treaty rate with the specific country where the investor is based or at the local withholding tax rate of 20%, whichever is lower.

 

Das said that new innovations from fintechs, such as digital platforms for trading green bonds and impact measurement tools can streamline processes and attract a broader investor base.

 

So far in the current financial year, the government has raised only 16.97 bln rupees out of the stipulated 120 bln rupees set to be raised in Apr-Sep through green bonds as it did not find favourable bids. On May 31, the Reserve Bank of India rejected all bids for 60 bln rupees worth of a new 10-year green paper as the government did not want to pay a yield higher than on the 10-year benchmark bond. Green bond offerings by Indian corporates have also been sporadic so far in the current financial year.

 

Globally, green bonds are typically priced at lower yields than regular bonds, and the difference between the yields is known as 'greenium'. Investors tend to demand lower yields on green securities because such investments count towards their environmental, social and governance-related investment goals. However, the government's green bond offerings so far have attracted only modest greeniums, as Indian investors lack incentives to price such bonds aggressively. 

 

The governor also said that technology can enhance transparency and traceability in green bond issuances and provide records of project impacts. "Artificial intelligence and big data analytics would enable banks and investors to assess environmental risks and opportunities associated with green investments," he said.  End

 

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

 

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