More Stories

Informist, Wednesday, Mar. 26, 2025

By Aaryan Khanna

NEW DELHI – Primary dealers have asked the Reserve Bank of India to better manage the government's green bond issuance by targeting long-term investors or by incentivising banks to buy the bonds. At a recent meeting with the RBI, underwriters expressed frustration with the devolvement of the illiquid green bonds that were up for auction, officials aware of the discussions said.

The government first issued green bonds in 2022-23 (Apr-Mar) and since then they have been a regular fixture in the borrowing calendar. The issuances have been concentrated in Oct-Mar. The government typically demands a 'greenium', or green premium, for the bonds, which are used for funding environmentally friendly projects.

"One of the suggestions was that the green bonds should only be issued in insurer-friendly tenures, since there is demand there," one of the officials said. "Otherwise, they should give some incentives to banks to buy the five- and 10-year green bonds, or not expect the bids to be at a premium. The market is not going to go anywhere if the current state of affairs continues."

The Centre raised INR 216.97 billion through sovereign green bonds in FY25, the first time it auctioned the bonds in the first half of the financial year. With the government's insistence on issuing these papers at a greenium, the RBI devolved two auctions of the 10-year green bond on underwriters and rejected bids at another two issuances of the 10-year green bond, even as routine bond auctions sailed through. The FY26 Budget has allocated around INR 250 billion worth of spending in green-bond-linked projects, similar to FY25.

Primary dealers are afraid of getting stuck with the rarely-traded bonds and having to hold them to maturity, sans any investor interest. They believe that in the absence of incentives to invest in green papers, forcing a greenium through auction devolvement is unjustified.

Ever since its introduction in the latter half of FY24, the 30-year green bond auctions have gone through smoothly, though the last one in February required RBI to accept bids at yields higher than the one prevailing on the 30-year benchmark gilt. 

The Insurance Regulatory and Development Authority of India said in January 2023, before the first sovereign green bond issuance, that investments in sovereign green bonds will count towards investments in infrastructure, helping fulfil regulatory requirements. The 30-year bond best matches the liabilities of life insurers, rather than the five- or 10-year bonds, the other two green bonds issued by the government so far.

"Insurers have no problem picking up the 30-year green bond," another official aware of the discussions said. "They can either classify it under infra (infrastructure-linked investment) or under their sovereign G-sec holdings. Some more issuances in that tenure were suggested, if the government wants to continue with them."

Informist had exclusively reported earlier this month, citing a finance ministry official, that the government was disappointed by the less than enthusiastic response to the sovereign green bonds and may eventually give up on the instrument if the greenium on these securities doesn't improve in the next two to three years.  End

Edited by Saji George Titus

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.