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Green Bonds and Green Deposits

What are Green Bonds?


  • Green bonds are bonds issued by any sovereign entity, inter-governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable.

  • The framework for the sovereign green bond was issued by the government on November 9, 2022.

  • Announced by RBI on Jan 6.


RBI’s announcement on Green Bonds


  • RBI will be issuing green bonds worth Rs. 16,000 cr this FY as 5yr and 10 yr bonds each on Jan 25 and Feb 9.

  • Proceeds of bonds used for environmentally sustainable projects

  • In Aug last year, govt said it stood committed to reduce emission intensity of GDP (emission per unit GDP) by 45% from 2005 level by 2030 and achieve 50% cumulative power generation using non-fossil fuel sources

  • Where will the proceeds go? The government will use the proceeds for financing various green projects including renewable energy, clean transportation, energy efficiency, climate change adaptation, sustainable water and waste management, pollution and prevention control and green buildings.

  • The issuance was OVERSUBSCRIBED

  • India entered the green bond market in 2015 with YES Bank issuing the first green bond for financing renewable and clean energy projects, particularly for wind and solar. The issuance was in the form of a green masala bond.


Usefulness

  • It’s critical to connect environmental projects with capital markets and investors and channel capital towards sustainable development – and Green Bonds are a way to make that connection.

  • Investors can engage in good practices

  • Means to hedge against climate change risks

  • Disincentivise high carbon emitting projects


What are Green Deposits?

  • Green deposits are interest-bearing fixed deposits denominated in Indian rupees, similar to regular fixed deposits. The proceeds from green deposits are earmarked for allocation into activities yielding environment benefits.

  • Framework for acceptance of green deposits announced by RBI which shall come into effect from June 1, 2023.

  • With a view to fostering and developing green finance ecosystem in the country. What is green finance ecosystem? A financial system enabling investments in environmentally sustainable projects.

  • Projects excluded from Green deposit proceeds-

    1. Projects involving new or existing extraction, production and distribution of fossil fuels, including improvements and upgrades; or where the core energy source is fossil-fuel based.

    2. Nuclear power generation.

    3. Direct waste incineration.

    4. Alcohol, weapons, tobacco, gaming, or palm oil industries.

    5. Renewable energy projects generating energy from biomass using feedstock originating from protected areas.

    6. Landfill projects.

    7. Hydropower plants larger than 25 MW.

  • In 2016, the RBI had released a report in collaboration with UNEP (United Nations Environment Programme) and India on the lines of sustainable financial systems.

    1. The report explores various facets of financial systems in India and its role in accelerating green finance.

 

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