Context: According to the Reserve Bank of India(RBI), the cost of issuing green bonds in India has generally remained higher compared to other bonds. It is largely due to asymmetric information. 

About Green Bonds

• It is a debt instrument just like any other normal bond, issued by an issuer for raising funds.  
• The only difference is that these instruments are designed specifically for funds to support specific projects benefitting the environment. 
• Green bonds typically come with tax incentives to enhance their attractiveness to investors. 
• The World Bank issued the first official green bond in 2009. 

Green Bonds in India

Yes Bank was the first Indian Bank to issue Green Infrastructure Bonds (GIBs) in India in 2015. 

SEBI has allocated the following eight categories with the tag of green projects:

• a) renewable energy b) clean transportation c) sustainable water management d) climate change e) energy efficiency f) sustainable waste management and g) land use and h) biodiversity conservation.  

Issues with Green Bond in India

• Green bonds constituted only 0.7% of all the bonds issued in India since 2018. 
• As of March 2020, Bank lending to renewable energy constituted 7.9% of outstanding bank credit to the power sector. 
• The average coupon rate for green bonds in India with maturities between 5 to 10 years has generally remained higher than the corporate and government bonds with similar tenure. 

Suggestions

• Better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in Green Bonds. 

Additional Information
Debt-to-Assets Ratio

• It is a leverage ratio that defines the total amount of debt relative to assets owned by a company.
• In other words, it is the total amount of a company’s liabilities divided by the total amount of the company’s assets.
• Using this metric, analysts can compare one company’s leverage with that of other companies in the same industry.
• This information can reflect how financially stable a company is.
• The higher the ratio, the higher the degree of leverage (DoL) and, consequently, the higher the risk of investing in that company.

Asymmetric Information

• It is also known as “information failure” and occurs when one party to an economic transaction possesses greater material knowledge than the other party.
• Almost all economic transactions involve information asymmetries.
• In certain transactions, sellers can take advantage of buyers because asymmetric information exists whereby the seller has more knowledge of the good being sold than the buyer. The reverse can also be true.
• Asymmetric information is seen as the desired outcome of a healthy market economy in terms of skilled labour, where workers specialize in a trade, becoming more productive, and providing greater value to workers in other trades.