Informist, Thursday, Nov. 14, 2024

--NSE IX's Kotak:Trading of green bonds in IFSC may take another 6-12 months
--NSE IX Kotak: RBI, stakeholders discussing IFSC green bond trade mechanism
--NSE IX's Kotak: Banks to levy FX conversion fee for IFSC green bond trades

By Priyasmita Dutta and Christina Titus

MUMBAI - Investors may need to pay banks a conversion fee to settle transactions of the government’s green bonds at exchanges in the International Financial Services Centre of GIFT City, according to Hetal Kotak, NSE International Exchange’s head of listings.

In the settlement mechanism currently being discussed by the Reserve Bank of India, exchanges, and clearing houses, investors will pay for green bonds in dollars through a banking unit in the IFSC. These banking units will then enter a trade on the exchange where the green bond is listed in foreign currency terms. The exchange's clearing corporation will handle any conversion between the dollar and the rupee, including secondary market trades between an Indian and foreign entity, and any refunds, Kotak said, with investors having to pay a fee to banks for the conversion. This fee will be determined by the banks, she told Informist.

"Currently, exchange clearing corporations, including CCIL (Clearing Corp of India Ltd.), are working with RBI on the process. But, exchanges have also been asked to set up an entire methodology or operationally be ready to provide for taking bids for the primary auction, passing it on to RBI, talking to e-Kuber system, and getting the bonds from RBI," Kotak said.

The RBI had, in April, said foreign investors in IFSC would be able to invest in the Indian government’s green bonds. In the scheme on the same notified by the central bank on Aug. 29, the central bank said the fund leg of secondary market deals of green bonds would be settled in foreign currency for transactions between two investors, between an investor and an IFSC banking unit, and between these banking units and their parent bank or branch or the Indian subsidiary of its parent bank.

According to Kotak, finalising the details of the settlement mechanism will take considerable time, delaying the trading of green bonds on exchanges at IFSC by another 6-12 months. "Ideally, the RBI would want this to be operational at the soonest, but there are some details that may take time.”

Speaking in early August, Governor Shaktikanta Das had said trading of green bonds in the IFSC at Gandhinagar’s Gujarat International Finance Tec-City was expected to begin in the second half of 2024-25 (Apr-Mar). As such, the continuation of talks on the precise settlement mechanism between the RBI, exchanges, and clearing houses could see green bonds trading in GIFT City only in FY26.

The move to allow foreign investors to invest and trade in green bonds in GIFT City is the latest to popularise the instrument that has seen muted investor interest, with the government only receiving a very modest ‘greenium’. Green bonds are typically priced at lower yields than regular bonds as these investments count towards environmental, social, and governance-related goals. However, India’s sovereign green bonds have so far been issued at a very minor premium compared to regular bonds of similar maturities, leading to the government raising only INR 16.97 billion so far in FY25 instead of the INR 120 billion it was supposed to raise via the said bonds in the first half of the year due to bids being unfavourable. End

Edited by Vandana Hingorani

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