Cost of issuing green bonds remains higher than other bonds
Part of: GS Prelims and GS- III – Economy
In news
A study by RBI noted that the cost of issuing green bonds has generally remained higher than other bonds in India, largely due to asymmetric information.
Key takeaways
The average coupon rate for green bonds issued since 2015 with maturities between 5 to 10 years have generally remained higher than the corporate and government bonds with similar tenure.
For the US dollar-denominated green bonds with tenure of more than or equal to 10 years, the coupon rate was lower than the corporate bonds.
Most of the green bonds in India are issued by the public sector units or corporates with better financial health.
Green bonds constituted only 0.7% of all the bonds issued in India since 2018,
Developing a better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in this segment.
Important value additions
A green bond is a fixed-income instrument designed specifically to support specific climate-related or environmental projects.
Green bonds typically come with tax incentives to enhance their attractiveness to investors.
The World Bank issued the first official green bond in 2009.
Around $157 billion worth of green bonds were issued in 2019.
