@Leisure - Vol-40 | srei
  • <none>

@Leisure - Vol-40

Newsletter
 

Green bonds for a green environment

Global warming is an omnipresent topic these days. It is believed that the Earth’s atmosphere is getting progressively warmer and our carbon emissions are the chief culprit for the same. Almost all the countries have made binding commitments via the Paris climate deal in 2015 to control carbon emissions and global warming.

India, as a responsible country, too has made such commitments to reduce carbon emissions. India is indeed taking up this responsibility in all sincerity and earnestness. Tapping renewable sources of energy such as wind power and solar power is a major step towards this end. Cutting industrial emissions is another major step that would help control emissions.

India’s funding requirements for its green initiative is huge. For example, India has set an ambitious target of 175 gigawatt of renewable power by 2022 which would entail a capital requirement of about US$ 500 billion. Raising such a huge amount in the domestic capital markets could be difficult and expensive too. This is where green bonds come handy.

Green bonds to control carbon emissions

It is common knowledge that a bond is a financial instrument that helps raise debt capital at a specified interest rate and maturity tenure. A bond can be used to fund any business activity, be it capital expenditure or working capital needs.

A green bond is similar to the above but the issuer explicitly undertakes to use the funds raised through such green bonds towards controlling carbon emissions. Such bonds were initially issued by multilateral agencies like the World Bank and Exim Bank of India to raise low cost funds to fund green initiatives. Indian banks and government institutions too have come up with such bond issues. Since cost of capital is high in India relative to the developed countries, these bonds aim to tap the international sources of funds at cheaper rates. Green bonds are typically issued against specific projects but carry the commitment of the issuer independent of the success of the intended project. So they are considered to carry relatively lower risk. One major risk of these bonds could be the currency risk.

The Indian landscape: 

India as a major developing country has a huge appetite for green bonds. Low cost funding will go a long way in funding the green initiatives of the country. The growing market in India for green bonds has attracted many long term investors like pension funds and other institutional investors. Indian capital market regulator SEBI has issued guidelines on issue of such green bonds.

India’s strong reiteration of its commitment towards the Paris agreement, albeit the withdrawal of the US, has reinforced investors’ faith in the country and kept their interest alive. The Indian government needs to attract and retain interested investors more aggressively through its policy prescriptions to realize its ambitious dreams on this front.

 

Sahaj-e-village launches e-learning service

  • India is a huge country, both by geographical expanse and also by the population count. It is indeed a challenge to deliver basic facilities to the millions of villages in every nook and corner of the country. Providing high quality education to these villages and towns too is a challenge given the constraints of physical and intellectual resources. Providing education in the electronic mode is therefore a feasible approach to fulfil the educational needs of the vast population. E-learning not only breaks the distance barrier but also the quality barrier. Standardized content delivered electronically would ensure that even the remotest village has access to quality education in an easy manner.
  • Sahaj e-Village Limited is an initiative by the SREI group to deliver quality education in the electronic mode. The initiative aims to unleash a new wave of e-learning across rural and semi-urban areas of the country which are otherwise denied quality learning opportunities. The initiative has been rolled out in a limited number of centres so far, but with ambitious plans for the future.

About Sahaj e-learning centres: now and in future

  • Sahaj aims to empower millions of Indians with high quality knowledge that would enhance their employment skills and intellectual capabilities. The initiative is being rolled out progressively with an ultimate aim of having a presence in all the 67,000 Sahaj centres across 23 states and union territories. Sahaj plans to partner with infrastructure-ready institutions like schools, NGOs, etc. to reach out to its target population. Adopting a franchisee model is another way of expanding reach.

Courses and modules on offer

  • The courses on offer range from basic skills like computer skills and communication skills to advanced qualifications like bridge courses for graduation, MBA, etc. Sahaj has also partnered with reputed e-learning portals across India to further this initiative. Sahaj partners have the option of offering courses from the portals too. These courses aim to improve employability of learners by enhancing their knowledge and skills.

Cost

  • The initiative aims to make e-learning affordable and hence, has pegged the fees low, starting from Rs.100 per curriculum. There will also be the option of ‘job guarantee courses’ whereby the learner has the option of starting to pay the fees after securing a job.
  • To conclude, Sahaj aims to bridge the urban-rural digital divide and leverage technology to provide quality education irrespective of the geography. The initiative will go a long way in facilitating sustainable livelihood for millions of Indian youth thus ensuring inclusive growth and overall development of our country.
 
 

RBI Rejigs Bond Quotas in Oct-Dec Quarter

The Reserve Bank of India (RBI) has increased the total investment limit for foreign portfolio investors (FPI) by Rs. 14,200 crore to Rs. 2,89,300 crore for the October to December quarter. As of October 3, 2017, the quota for FPIs has been raised by Rs. 8,000 crore in central government securities and Rs. 6,200 crore for state development loans by the central bank. The Reserve Bank has already taken the step to remove masala bonds or rupee denominated bonds from corporate debt limit, which will allow for more investments by FPIs. Foreign investors can invest an additional Rs. 44,001 crore in corporate bonds over the next two quarters. These moves by the central bank will allow for an additional window for fund raising by both central and state governments and give an impetus to Indian bonds, whose demand has been growing steadily owing to higher returns that these provide.

The Bond Scenario in India

Bonds are a preferred source of fund raising for Indian businesses as they reduce the cost of borrowing when compared to other sources of funds like bank loans, etc. The government too taps the Indian savings pool through bonds to fund its infrastructure and welfare schemes. Though the Indian bond market is predominantly institutional on the investor side, retail investors also participate through mutual fund and insurance schemes.

Coupon rates on Indian bonds mirror the general interest rate scenario prevalent locally and globally, from time to time. They are also influenced by the prevailing inflation levels as typically higher inflation results in higher coupon rates mirroring the RBI action on repo and reverse repo rates. Supply and demand too have an impact on coupon rates as high demand for funds tends to push up rates, and vice versa. Government borrowing is also a factor that has an impact on bond rates as high government borrowing tends to crowd out private borrowers who have to offer a higher rate to attract investments.

The appetite for Indian bonds:

As already mentioned, Indian retail investors have a limited participation in bond issuances due to the absence of a vibrant retail debt market. Indian institutions channel retail investor money to the debt market through their schemes. When compared to bank deposits, direct retail participation in Indian bond markets is minimal. Indians tend to prefer the familiar and omni-present bank branches to deploy their money rather than the bond market.

Foreign investors however, have a huge appetite for Indian bonds given the higher returns that these generate when compared to their home market. Interest rates in the developed countries are typically much lower than what is on offer in India. Indian bonds also rank well compared with other emerging market bonds. In September 2017, the FPI limit on investments in Indian bonds had almost been reached and FPI utilisation levels had not moved from the 99% mark.

Billions of dollars pour into Indian bonds every year. This is in fact a double edged sword. It of course provides access to vast pools of funds for Indian borrowers. The flip side is two-fold. One is that such huge inflows into Indian bonds tend to result in the appreciation of the Indian Rupee. Large supply of any commodity tends to lower its price and the same applies to foreign currencies like dollar and Euro too. An appreciating Rupee makes Indian exports uncompetitive as the dollar price of Indian goods and services have to be marked up to counter the lower value. The other flip side is that the high domestic liquidity induced by RBI’s purchase of foreign currency could fuel inflation domestically as more money would be chasing the limited goods and services available.

Increase in Quotas is part of a balancing act

It is therefore imperative that the pros and cons of foreign inflows into Indian bonds need to be balanced. The RBI has the difficult task of maintaining a balance between the positives and negatives in this scenario. One tool at its disposal toward this end is to periodically impose quotas on the bond purchases that foreign investors can make in India. The recent actions of the central bank therefore of increasing the quotas are indicative of the desire to give a boost to overseas investors to invest more in Indian government bonds and securities. The government also seems keen to have more foreign investment in corporate bonds as well. However, these quotas can be readjusted by the central bank keeping in view various indicators such as inflation and money supply in the system.

 
 

Buddy Jokes

Jokes / Quotes

Q: How many central bank economists does it take to screw in a light bulb?

A: Just one - he holds the light bulb and the whole earth revolves around him.

Economics is the painful elaboration of the obvious.

"Money is like a sixth sense – and you can't make use of the other five without it." – William Somerset Maugha

A quote from an interview with the head of a growing company.

Journalist: So how many employees are working in your company?

Company CEO: Approximately half of them.

"The rich. You know why they’re so odd? Because they can afford to be." –Alexander Knox

 

Buddy Quiz

1) High foreign capital inflows tend to appreciate the local currency, other factors remaining same – True

2) Indian bonds are not as well rated as bonds of other emerging markets - False

3) Tight domestic liquidity tends to fuel inflation, other factors remaining same – False

4) 4. The Reserve Bank of India has recently increased FPI quotas on investment in Indian bonds. - True