RBI Cancels 10 Years Green Bond Auction For The First Time

In an unprecedented move, the Reserve Bank of India (RBI) cancelled the auction of 10 years green bonds on Friday as traders were unwilling to pay a greenium, which is the premium investors are willing to pay for bonds due to their positive sustainability impact, according to dealers. The government had planned to issue Rs 12,000 crore worth of green bonds in the first half of the current financial year, diverging from the usual practice of issuing them in the latter half. These green bonds were to be issued in two tranches of Rs 6,000 crore each for a duration of 10 years.

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

On Friday, the yield on the benchmark 10 year government bond settled at 6.98 per cent, slightly lower than the 7 per cent on Thursday. The funds raised from the sale of green bonds are intended to finance public sector projects aimed at reducing the economy's carbon footprint.

The treasury head at a private bank suggested that the RBI might have perceived a lack of market interest at that moment and could potentially revisit the auction next week, after the market gains more clarity following the election results.

In the foreign exchange market, the RBI intervened by selling dollars to prevent further depreciation of the rupee. The rupee fell to a two-week low of 83.47 against the dollar on Friday, driven by month-end dollar demand from oil companies and caution ahead of the general election results, as reported by dealers. The rupee had settled at 83.32 per dollar on Thursday.

“Ahead of the general election results on June 4, the rupee’s volatility has been range-bound and stable, thanks to the RBI's interventions,” commented Jateen Trivedi, VP and research analyst (commodity and currency) at LKP Securities. Throughout the week, the Indian currency exhibited volatility in anticipation of the election results, appreciating to a high of 83.04 per dollar before declining to 83.47 per dollar ahead of the forecasted results on June 1 and the actual results on 4 June.