Green Bonds are fixed-income securities whose proceeds are ring-fenced for projects with positive environmental impact — renewable energy (solar/wind capacity), energy efficiency (LED, building retrofits), clean transport (metro, EV infra), sustainable water/waste management, and climate-adaptation infrastructure. Issuers must publish a use-of-proceeds framework, get third-party verification, and report annually on allocation and impact.
India context: The RBI launched Sovereign Green Bonds (SGrBs) in January 2023 with two auctions totalling ₹16,000 cr (5-yr and 10-yr tenors). Subsequent FY24 and FY25 issuances took cumulative SGrB issuance past ₹50,000 cr. Proceeds are deployed via the Public Account into eligible green projects per the Sovereign Green Bonds Framework (Nov 2022) published by the Ministry of Finance.
"Greenium": Green bonds typically price at a small yield discount (the greenium) vs vanilla G-Secs of the same tenor — investors accept slightly lower yield for the ESG label. In RBI's Jan 2023 auction, the 10-yr SGrB cut-off was 7.29% vs ~7.35% on the comparable 10-yr G-Sec, a ~6 bps greenium. Recent auctions show the spread narrowing as supply grows.
INR example: ₹10 lakh in a 10-yr SGrB at 7.29% pays ₹72,900 interest annually. Taxation is identical to regular G-Secs — interest taxed at slab rate, capital gains at 12.5% LTCG (>12 months for listed) or slab rate STCG. The "green" label gives zero tax benefit; it is purely a use-of-proceeds tag.
When relevant:
- You want sovereign-credit fixed income with an ESG tilt
- Allocating an institutional ESG mandate
- Comparing pricing vs regular G-Sec to gauge greenium for entry timing
RBI caveat: SGrBs are sold via RBI Retail Direct and primary-dealer auctions. Secondary-market liquidity is thinner than vanilla G-Secs — expect wider bid-ask. Educational only — not advice. AMFI ARN-314872.
Related terms: ESG Investing, LTCG, NAV.