General Knowledge and Current Affairs are an important component of many competitive exams, such as the UPSC Civil Services Examination, SSC CGL Exam, Bank PO & other PSU entrance tests, etc. Therefore, understanding the concepts/terms/events that are significant in our daily lives is critical for aspirants. To make your preparation easier and to help you score better in your exams, we at PaGaLGuY bring you brief articles on important phenomena, concepts and events. Spend just 15 minutes every day on pagalguy.com and score at least 10 more marks in your General Studies paper!
To
access all the content available on PaGaLGuY, login to https://www.pagalguy.com/
In this article, we would discuss
green bonds.
India’s green bond market is flourishing as several banks,
both public and private, are opting to raise funds for sustainable energy projects
through this medium. Yes Bank and Exim Bank were the forerunners in this
regard, launching green bonds to back environment-friendly energy projects.
What are green bonds?
While a bond is a debt instrument that an entity uses to
raise money from investors, with green bonds the issuer publicly declares that the
capital being raised will only be used to fund ‘green’ projects. For instance: projects
relating to renewable energy, energy conservation, carbon emission reductions,
pollution prevention, among others, fall under this category.
Besides agencies like World Bank, European Investment Bank
that cater to several countries, green bonds can be issued by government
agencies, municipal corporations, etc.
Green bonds issued by
Indian banks
Earlier this year, the Indian government approached financial
institutions, government agencies and banks to raise low-cost and long-term
funds to help fund India’s aim to quadruple its renewable energy production,
while also making it economically feasible for debt-burdened companies to buy
clean power. India Infrastructure Finance Co. Ltd (IIFCL), Power Finance Corp.
Ltd (PFC), REC, IDBI Bank Ltd, Indian Renewable Energy Development Agency Ltd
(Ireda), ICICI Bank Ltd and Yes Bank Ltd, were among the 8 chosen lenders.
In February 2015, Yes Bank had issued green infrastructure
bonds and raised Rs.1000 crore from the market. The bank had made a commitment
of 5000 megawatt (MW) of renewable energy projects to the government which
would be funded by the proceeds from these bonds.
The same bank recently raised $ 49.2 mn or Rs.315 crores
from International Finance Corporation, the private sector financing arm of the
World Bank. This was IFC’s first green bond to support climate-friendly
investments in India. Raised for a term of 10 years at 8.95%, the funds would mainly
be used by Yes Bank in solar and wind energy projects.
In March 2015, the Exim Bank of India issued a five-year
$500 million green bond, which is India’s first dollar-denominated green bond. The
bank has said it would use the net proceeds to fund eligible green projects in
countries including Bangladesh and Sri Lanka.
Experts view use of green bonds as imperative to mobilise
international savings to help bridge the climate-finance gap. Though, there
have been instances of proceeds from green bonds not being used for eco-friendly
projects, at present there is a strong appetite for them.
Significance of green
bonds for India
As India has set ambitious target of building 175 gigawatt (GW)
of renewable energy capacity by 2022, which is quite high vis-à-vis the current
30 gigawatt. This requires funds to the tune of $200 billion. However, high
interest rates, low budget allocation and limited options to raise funds for investment
in the renewable energy sector, are impediments to be overcome.
Green bonds carry a low interest rates. As they are meant
for specific investors looking to spend in renewable energy projects, pricing
could be attractive. They intrinsically carry lower risk than other bonds. This
is because as proceeds are raised for specific green projects, repayment is
tied to the issuer, not the success of the projects. Thus, risk of the project
not performing well lies with the issuer and not the investor.
Bank PO:
FB: https://www.facebook.com/pagalguybankpo
Twitter: https://twitter.com/PaGaLGuYBankPO
SSC & Other Exams:
FB: https://www.facebook.com/pages/Pagalguy-SSC-CGL-Others/879667042056262
Twitter: https://twitter.com/pagalguyssc
UPSC:
Facebook: https://www.facebook.com/pages/Pagalguy-UPSC/951926044840262
Twitter: https://twitter.com/PaGaLGuYUPSC