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RBI allows FIIs to invest in Green Bonds

  • Context (TH): The Reserve Bank of India (RBI) allowed investments in the country’s Sovereign Green Bonds (SGrBs) by Foreign Institutional Investors (FIIs).
  • Foreign Institutional Investors (FIIS) include institutional investors such as insurance companies, pension funds, and nation-states’ sovereign wealth funds. On the other hand, Foreign Portfolio Investors are a larger group that includes individuals as well as FIIs.

Sovereign Green Bonds (SGrBs)

  • Government debt to specifically fund projects to accelerate the transition to a low-carbon economy.
  • In the 2022-23 Union Budget, the Indian govt. announced the SGrBs to fund govt. green projects.
  • The RBI issued SGrBs worth ₹16,000 crore in two tranches last year, with maturities in 2028 and 2033.
  • These bonds qualify as green government securities (G-Secs) for the Statutory Liquidity Ratio (SLR) and Repurchase Transactions (Repo). They are also tradable in the secondary market.
  • These were oversubscribed mainly by domestic financial institutions & banks.
  • However, it raises the concern that it narrows the government’s borrowing avenues.
  • SGrBs yield lower interest than conventional G-Secs, and the amount foregone by banks by investing in them is called a Greenium.

Benefits of SGrBs

  • Widened pool: It will add up to the capital available to fund the country’s green ambitions.
  • Diversification by FIIs: FIIs are interested in diversifying their pool of green investments with considerable regulatory support, particularly in developed countries.
  • Green credentials: FIIs might also seek to gain green credentials when such investments are not available in their home markets.
  • Addressing greenwashing: India has successfully addressed greenwashing fears with the Sovereign Green Bonds Framework in late 2022.

India’s Sovereign Green Bonds Framework 2022

  • Implementing Agency: The Green Finance Working Committee (GFWC) is chaired by the Chief Economic Advisor and constituted by the Ministry of Finance.

Eligible Projects

  • Investment, subsidies, grants-in-aid, or tax foregone or select operational expenditures related to green projects.
  • R&D expenditures related to reducing the economy’s carbon intensity & progress towards the SDGs.
  • Such expenditures must have occurred a maximum of 12 months prior to the issuance of the SGrB.

Excluded Sectors

  • Fossil-fuel extraction and related projects
  • Nuclear power generation
  • Direct waste incineration
  • Alcohol, weapons, tobacco, gaming, or palm oil industries
  • Renewable energy projects generating energy from biomass using
  • feedstock originating from protected areas
  • Landfill projects
  • Hydropower plants larger than 25 MW
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