Bond, green Bond: Opening likely in 2nd half of FY23

The government is likely to launch green bonds in the second half of the current fiscal year and may offer slightly better yields compared with regular bonds of corresponding maturity or bundle in some incentives to make them attractive. These are expected to be medium-to-long-term bonds and a major part of the proceeds will be dedicated to the renewable energy sector, a government official

The Centre and the Reserve Bank of India (RBI) are expected to finalise the framework for sovereign green bonds in a few months.

"The work on the draft framework is on and is expected to be out by June-end," a senior finance ministry official told ET. "If things go as per schedule, the bond is likely to hit the market in the second half of this year."

The finance ministry has held discussions with the RBI and market experts on the contours of the bonds.

Globally, green bonds worth more than $500 billion were issued in 2021, according to Climate Bonds Market Intelligence. Total issuance is expected to reach $5 trillion in 2025 as ESG (environment, social, governance) investing accelerates.

The green bonds will likely attract these new investors, reducing pressure on the debt market from high government borrowings in the current fiscal year.

'Quantum to be Decided Later'
Finance minister Nirmala Sitharaman had announced in her February 1 budget speech that the government will issue sovereign green bonds in FY23 as part of its overall market borrowing to mobilise resources for green infrastructure.

The government last week announced the first-half borrowing programme for FY23 of ₹8.45 lakh crore. Its full-year gross borrowing is budgeted at ₹14.31 lakh crore.

The green bonds may be priced lower than regular government debt, another official said. Lower prices will raise the yields on these bonds, making them attractive. Bond prices and yields are inversely related. The official said the quantum of the issuance will be decided later. "We have got encouraging responses on the sovereign green bonds in our pre-budget consultation with the market. There is still discussion ongoing on whether it should be open for the retail investors or not," said the first official cited above.

Economists and market experts said these bonds could attract the much-needed new pool of capital interested in financing the transition to green energy.

"There is certainly a demand for this, given the Centre's thrust on green infrastructure financing but much will depend on what kind of incentives it offers to the investors," said Bank of Baroda chief economist Madan Sabnavis. If yields are better than regular bonds or they have tax incentives attached, then even retail investors will be attracted, he said. India has set a target of net-zero emissions by 2070

Team Edu-Visor