Reserve Bank of India cancels 10-year green bond auction for first time

In a first, the Reserve Bank of India (RBI) on Friday cancelled the auction of 10-year green bonds as traders refused to pay greenium, said dealers. Greenium signifies the premium investors are willing to pay for green bonds because of their sustainability impact.

Diverging from the pattern of issuing green bonds in the latter half, the government plans to issue green bonds worth Rs 12,000 crore in the first half of the current financial year. The green bonds were planned to be issued in two tranches of Rs 6,000 crore each for a period of 10 years.

“The bids were between 7 per cent and 7.06 per cent (yield), which the RBI was not ready to pay,” said the treasury head at a private bank. At the time of the auction, the benchmark bond yield was trading at 6.99 per cent.

The yield on the benchmark 10-year government bond settled at 6.98 per cent on Friday, against 7 per cent on Thursday.

Funds generated via the sale of green bonds will be allocated to public-sector projects aimed at decreasing the carbon footprint of the economy.

“My sense is that the RBI thought the market was not interested right now. They might come back next week when the market will gain clarity after the election results,” said the treasury head at a private bank.

In the foreign exchange market, the RBI intervened through dollar sales, which protected the rupee from further depreciation.

The rupee declined to a two-week low on Friday to settle at 83.47 against the dollar due to month-end dollar demand from oil companies and caution ahead of the general election results, said dealers.

The local currency had settled at 83.32 per dollar on Thursday.

“Ahead of the declaration of general election results on June 4, the rupee’s volatility has remained range-bound and stable due to the RBI’s efforts,” said Jateen Trivedi, VP research analyst (commodity and currency), LKP Securities.

During the week, the Indian unit moved in both directions exhibiting volatility in anticipation of upcoming election results. It appreciated to a high of 83.04 per dollar before closing at a low of 83.47 against the dollar ahead of the election result forecasts on June 1 and the actual results on June 4.

“The fight may be closer as indicated by the stock markets and rupee falling to near all-time low despite an upgrade in India’s outlook by S&P to positive and indication of a rating upgrade if the fiscal deficit of the country as a whole falls below 7 per cent,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

“An inflow of $2.8 billion from MSCI rebalancing also could not alter the course of the currency as oil companies, defence, government debt payment, and FPIs bought the Dollar thus absorbing the entire inflow,” Bhansali said.