India launches first-ever sovereign green bonds auction

A man walks behind the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai

MUMBAI (Reuters) - The Reserve Bank of India will auction 160 billion rupees ($1.93 billion) worth of sovereign green bonds in two tranches, the central bank said on Friday, in the government's first-ever such debt sale to raise funds to finance clean projects.

The RBI will auction 5-year and 10-year green bonds worth 40 billion rupees each on Jan. 25 and on Feb. 9 in what will be a uniform price auction, the central bank said.

Finance Minister Nirmala Sitharaman announced the plan to issue sovereign green bonds in the 2022-23 budget as Asia's third-largest economy attempts to tap the domestic debt market to finance green infrastructure projects.

The proceeds will be used to fund solar power projects, followed by wind and small hydro projects and other "public sector projects which help in reducing the carbon intensity of the economy," the RBI said.

A green finance working committee, headed by the Chief Economic Adviser V Anantha Nageswaran, will select public sector projects for green financing from those submitted by government departments.

The committee's choice will be guided by environment specialists and representatives from the ministry of environment, forests and climate change, the government said.

The committee will identify fresh projects each year and ensure the proceeds from the bond sales are allocated within 24 months from the date of issuance.

Market participants expect foreign investors and foreign banks to be active in the auction but do not see local investors showing any major interest.

"Local primary dealers may not be able to do much as there has been no major briefing regarding green bonds and since the announcement of the issuance, foreign banks have been in constant touch with the government," a trader with a primary dealership said.

The investment in green bonds can qualify towards statutory liquidity ratio (SLR), the minimum percentage of deposits commercial banks are required to invest in liquid assets, such as government bonds.

The investment in green bonds will also be designated as specified securities under the 'Fully Accessible Route' for foreign investors, where unlimited investment is allowed. ($1 = 82.7330 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)