Indian issuers raised nearly $43 billion in green bonds from January 2014 to March 2023

In 2021, India's annual labelled and unlabelled green bond issuance increased to a record high of $9.5 billion in 2021, the report stated. However, in 2022, green bond volumes in the power sector dropped sharply, for both rupee-denominated and dollar currency notes. "Tighter monetary policy leading to higher bond yields and the depreciation of the rupee against the dollar caused the decline in 2022," the report highlighted.

Medium-tenure bonds, in the five to 10-year range, dominated till 2021, but shorter and longer-tenure bonds increased in prominence the followig year. The most common bonds are the ones with a fixed maturity date. However several issuers of bonds that had call options (which permit early redemption) were able to use the low borrowing rates in 2021 to their advantage to refinance their debt.

Government issuers such as IREDA, NHPC and NTPC, have a more conservative approach in their green bond structures, giving a strong preference to medium tenures, fixed coupon rates and fixed maturity. In contrast, private companies have issued written call options, zero-coupon bonds and linked coupon rates to lending rates or other external benchmarks, the report stated.

In 2022, refinancing was the most common use of proceeds and its popularity has risen since 2019. The report stated that bonds for general corporate purposes was becoming more common, while issuers are also including more users for the proceeds in the bond prospectuses. "This gives issuers greater flexibility in the use of funds but may increase the perception of greenwashing," it stated.

Bondholders preferred having a collective action clause the most. This enables changing the fundamental terms of a bond via collective action. Some common restrictions on issuers were related to their ability to make cash distribution to protect the interest of the holders, sell assets to protect cash flow and consolidate with other entitites to safeguard against governance charges, the report stated.

In 2023, the estimated payments on outstanding green bonds are 33 percent than in the last two years, a relief for issuers after the recent rate hikes and sharp depreciation of the Indian rupee in 2022. "The entry of sovereign and quasi-sovereign issuers has led to an increase in regulatory scrutiny of green bonds and introduction of new products, such as green bond indexes and mutual funds," the report added.What are green bonds and their role in the transition to clean energy:?

Green bonds are government - or company-issued borrowings and securities that are floated to fund and finance government debt. Just like any other debt instrument and conventional fixed-income security that it is bought by investors who provide the principal that the issuer requires and receive interest upon the maturity of the bonds.

The way that green bonds differ from more conventional securities is that the issuer pledges to use the amount raised purely towards financing projects that have a net positive contribution to the environment.

The Finance Minister, in this year's Union Budget, announced Rs 35,000 crore for priority capital investment towards energy transition and net zero objectives and energy security by the ministry of petroleum and natural gas. Later, she clarified that the money allotted to energy security and transition is not a subsidy, which is being given indirectly. "There are two objectives of allocating this money: To make a transition from fossil fuel to renewable energy and to make sure that our strategic reserves are all filled up adequately," she had said.

At the beginning of this year, the government had announced an issuance calendar for Sovereign Green Bonds (SGrBs) in order to mobilise resources for green infrastructure. It is expected to raise Rs 16,000 crore in two tranches. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy, it said.

On January 25, the government sold its first SGrBs worth Rs 8,000 crore at yields below comparable government bonds. The Reserve Bank of India auctioned Rs 4,000 crore of five-year bonds at a coupon rate of 7.1 percent and another Rs 4,000 crore of 10-year bonds at a 7.29 percent.