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Informist, Thursday, Aug 29, 2024

--RBI notifies scheme for trading of sovereign green bonds at IFSC

--RBI notifies scheme for settlement of sovereign green bonds at IFSC

NEW DELHI – The Reserve Bank of India today notified the scheme for trading and settlement of sovereign green bonds at the International Financial Services Centre in India. The central bank had first announced the scheme after the April monetary policy review. 

The scheme shall come into effect immediately, the central bank said. India's sole IFSC is at the Gujarat International Financial Tec-City, or GIFT City, in Gandhinagar. GIFT City is a deemed foreign jurisdiction set up by the government to boost foreign investments in Indian assets.

The eligible investors, as per the scheme, include residents outside India that do not belong to any high-risk jurisdictions specified by the Financial Action Task Force, and International Banking Units of a foreign bank which does not have a branch or subsidiary licenced to undertake banking business in India. Funds setup by domestic entities that come under the regulation of the International Financial Services Centres Authority can also invest in green gilts set to be traded in the IFSC.

Only the specified international banking units, from foreign banks with no onshore presence, are counted as investors. International banking units of Indian banks and foreign banks with an onshore subsidiary or branch can participate in the scheme. These eligible international banking units cannot participate in primary auctions of sovereign green bonds through the IFSC, and even in the secondary market, cannot trade among themselves.

Investors can trade among themselves and with these eligible entities, which serve as market makers. Eligible international banking units can transfer sovereign green bonds from their onshore parent entities, with a bilateral settlement. The fund leg shall be settled in foreign currency and the transfer would be facilitated by the Clearing Corp of India Ltd.

"Investors can participate in the primary auctions of securities undertaken by the RBI and transact in the secondary market for securities in the IFSC," according to the scheme. The eligible investors can submit bids in the primary auction through the RBI's core banking solution platform e-Kuber.

The government has so far raised only 16.97 bln rupees from the sale of green securities in Apr-Sep, out of the 120 bln rupees scheduled. Over the past two financial years, when sovereign green bond sales took place only in Oct-Mar, the government raised 160 bln rupees and 200 bln rupees, respectively, through the instrument. This was done in tenures of 5, 10, and 30 years.

The authorised depository and clearing corporations must each open a Constituents' Subsidiary General Ledger account and a current account with the RBI to avail the scheme. They may open an rupee account with a commercial bank in India to facilitate the scheme, the RBI said. 

The trading hours for green securities shall be from 0900 IST to 1700 IST, and would be through over-the-counter markets at the IFSC. "The settlement cycle for trades in securities shall be T+1 or T+2 where T represents the trade date," as per the scheme.

Investors will not be allowed to repackage or write any derivative instrument on underlying securities held by them under the scheme, as per the RBI. "Investors shall also not be permitted to undertake repo transactions in such securities." Investors who are eligible to participate in the domestic market cannot transact securities between their onshore gilt or demat account and their account in the IFSC. 

"The applicable taxes will be as decided by the government of India, from time to time," the RBI said. The interest on debt instruments trading at GIFT-IFSC is taxed at 9%. However, outside of IFSC, such income of foreign portfolio investors is taxed at India’s treaty rate with the country where the investor is based or at the local withholding tax rate of 20%, whichever is lower.

On Feb 2, Informist had exclusively reported, citing the Department of Economic Affairs Secretary Ajay Seth, that the government is looking to set up a mechanism to enable trading of Indian gilts, specifically green bonds at the International Financial Services Centre.  End

Reported by Aaryan Khanna and Krity Ambey

Edited by Deepshikha Bhardwaj

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