The Centre’s next tranche of green bonds is expected in the second half of the next financial year after two-thirds of the funds raised through such bonds recently.
For the first time, the Centre mobilised `16,000 crore through two tranches of green bonds in January-February.
“The expenditure of funds raised through green bonds has begun. We’ll have to complete around 75% of the amount raised before we plan for the next round,” a senior official told FE.
The finance ministry and Reserve Bank of India are trying to work out how to place the next tranches of sovereign green bonds in FY24 to command a higher ‘greenium’ than the low 2-4 basis points (bps) discovered in the latest tranche in February. The ‘greenium’ is the discount on the yield that the sovereign green bond commands over traditional government securities (G-Secs).
The Centre’s gross market borrowing is pegged at `15.43 trillion for 2023-24, an increase of 8.6% over the revised estimate of `14.21 trillion for 2022-23.
The government will likely announce its borrowing calendar for the first half of 2023-24 on March 29. Even though the amount is not yet crystalised, the government might raise `16,000 crore or thereabouts in the second half of the next financial year as well.
Currently, there is no specific mandate from financial sector regulators to financial institutions to invest in green bonds. When the objective is to maximise the risk-adjusted return, investors prefer high-yield G-Secs to sovereign green bonds as the risk is the same.
Analysts have suggested the government put out a regulatory mandate for financial institutions that would require them to invest a portion of their assets in such bonds. This, they believe, could be one way to generate demand for green bonds at relatively high greeniums.
If demand-side issues are not addressed, the premium pricing or the discount on the green bond yields will not appear.
In November 2022, finance minister Nirmala Sitharaman approved a framework for the government’s maiden green bond issuance. It would focus on financing public projects across nine areas, including renewable energy, clean transportation, climate change, sustainable water and waste management and pollution control.