OVERVIEW:

• The International Financial Services Centres Authority (IFSCA) issued a circular on the trading and settlement of Sovereign Green Bonds (SGrBs) in the IFSC.

• This framework, introduced on August 29, 2024, under the Reserve Bank of India’s (RBI) scheme, aims to enhance non-resident investor participation, driving global capital into India’s green infrastructure projects.

• The circular defines key institutions, such as clearing corporations and depositories, eligible for participating in SGrBs.

• The IFSCA aims to facilitate seamless trading and settlement processes, with a focus on promoting green finance while ensuring global compliance standards are met.

UNDERSTANDING SOVEREIGN GREEN BONDS:

• Sovereign Green Bonds (SGrBs) are debt instruments issued by government to raise funds specifically for projects that have positive environmental or climate benefits.

• The proceeds from these bonds are earmarked for green initiatives, such as renewable energy projects, energy efficiency improvements, and sustainable infrastructure development.

• As global awareness of climate change grows, SGrBs are gaining traction as a viable investment option for those seeking to align their portfolios with sustainable development goals.

ELIGIBLE SECURITIES AND PARTICIPANTS:

• Entities such as broker-dealers, clearing members, custodians, and IBUs (IFSC Banking Units) that are registered with IFSCA are allowed to participate in this trading ecosystem.

• Non-resident investors, including entities outside India that are not incorporated in High-Risk Jurisdictions identified by the FATF (Financial Action Task Force), can participate in the RBI Scheme.

• Indian funds and schemes regulated by IFSCA are also eligible to invest in SGrBs under this framework, further expanding the potential investor base.

• The securities eligible under this scheme are as outlined in the RBI Scheme and are subject to amendments as notified.

PRIMARY MARKETS PARTICIPATION:

• In the primary market, eligible investors can participate in RBI’s auction process via stock exchanges operating in IFSC and these exchanges will offer an electronic platform for bidding.

• Clearing Corporations will act as aggregators, collecting and facilitating bids from eligible investors and submitting them to RBI’s Core Banking Solution (E-Kuber system).

• Eligible investors may submit competitive bids through Broker-Dealers, Clearing Members, or Custodians registered with the IFSCA, or via eligible IBUs, on the platform established by recognized stock exchanges.

SECONDARY MARKET TRADING:

• In the secondary market, eligible investors can trade SGrBs with other non-resident investors or IFSC Banking Units (IBUs).

• Transactions between two eligible IBUs, however, are not permitted under this scheme.

• Settlement of trades is conducted on a delivery versus payment model (DVP-1) basis, meaning the transfer of funds and securities occurs simultaneously.

CONCLUSION:

• The IFSCA’s initiative to facilitate SGrBs in the GIFT IFSC is a strategic move that aligns with India’s commitment to achieving net-zero emissions by 2070.

• The GIFT IFSC has been designed as a global financial hub, offering a regulatory environment that supports international business and financial services.

• By introducing SGrBs, the IFSCA aims to create a robust platform for sustainable finance in India.