India's $3 Billion Green Loan Could Result In Debt With A Longer Maturity

By Outlook Planet Desk March 10, 2023

India plans to sell debt with longer maturities and could offer up to 250 billion rupees ($3 billion) in green bonds in the upcoming fiscal year

India's $3 Billion Green Loan Could Result In Debt With A Longer Maturity
The transition from dirty fossil fuels to renewable energy will be financed in part by green bonds. DepositPhotos

India intends to introduce longer maturity debt to the sale and may sell up to 250 billion rupees ($3 billion) of green bonds in the upcoming fiscal year, according to agencies.

The officials reportedly revealed, that there is a demand for documents with a 30- to 40-year tenor, particularly from insurance firms, to fund projects with a longer gestation period.

India raised 160 billion rupees in the current fiscal year that ends on March 31 by issuing green bonds with tenors of five and ten years. The exact offering will depend on demand, according to the authorities, even though the finance ministry has projected green issuances at 1.6% of the total borrowing of 15.43 trillion rupees for the following year.

India, the third-largest carbon polluter in the world, plans to use green bonds to help finance the switch from filthy fossil fuels to renewable energy. As evidenced by the last two auctions, where the 10-year paper garnered a premium of around six basis points above the conventional bond with the same duration, it can assist the government in lowering its borrowing costs.

The "greenium" for lengthier tenors is expected to increase, and the finance ministry is also talking about issuing securities with shorter maturities to encourage price discovery along the yield curve, according to the sources.

Given that Prime Minister Narendra Modi wants to completely eliminate greenhouse gas emissions by the year 2070, investors' interest in funding India's environmental projects is reflected in the yield gap over traditional bonds. The government may benefit from the decreased borrowing costs as it gears up for another year of record debt sales to spur economic expansion.

From its peak in June, the yield on the 30-year government bond has decreased 38 basis points to 7.5%, while the yield on the 10-year paper has downed 18 basis points to 7.44%.

The next round of green bonds won't likely be issued until after September, but its general outline could be discussed with the Reserve Bank of India during a meeting later this month to finalise the borrowing strategy for the first half of the following fiscal year, according to the reports.