Impact of Green Bonds on Building a Strong Green Brand Equity of Banks in India.
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2 June 2017 - 12:43, by , in blog, ITM Institute, Uncategorized, Comments off

Bonds are one of the most important principal sources of finance. Green bonds are like any other bonds with one of the added characteristics of utilising the proceeds on green projects such as water development, clean transportation and climate adaptation. Green bonds have certain important benefits like:

(a) low cost of financing

(b) lower rate of interest

(c) cost competitiveness and reduction in transactional costs.

Green bonds are an important source for revenue generation for a country like India as India has a dream of financing renewable energy target of 175 GW by 2022. The development of green bonds in India is at a very nascent stage and in according to the previous reports four banks have started implementing green bonds viz, Yes bank, EXIM bank, IDBI bank and Axis bank.The experience of these banks and its impact on brand equity can be summed as follows:

YES BANK: issued India’s first ever green bonds and first amongst the emerging economies in August 2016, raising160 million USD towards green infrastructure including renewable energy (Solar Power, Wind Power, Biomass, and Small Hydel Projects) in accordance with the Green Bond Principles. It witnessed a very strong demand from leading investors including Insurance companies, Pension & Provident Funds, Foreign Portfolio Investors, New Pension Schemes and Mutual Funds, resulting in over- subscription. Subsequently, IFC issued its first ‘green masala bond’ on the LSE raising INR 315 Crores, in August 2015, which was privately placed in the YES BANK’s green bonds. The pioneering efforts of YES BANK have been lauded and recently in May 2016, YES BANK was awarded for these innovative bond structures by Environmental Finance.Issuing the first green bond in India had presented its own challenges:

  • Apprehension about investor appetite, as these instruments were new in the market
  • Institutional alignment to GBP through processes, personnel and communication, as new linkages had to be established.
  • On-boarding an assurance partner, as this was a new framework, and assurers were also grappling with the nascence.
  • No pricing benefit at the time owing to the nascence of the market.

Recently credit enhancement from DFIs(Direct Foreign investment) has proven to be an effective mechanism to get pricing benefit. The current market dynamic has improved over the past one and a half years with SEBI’s proactive intervention which encourages issuers to be more transparent and accountable, and engage with third party assurance providers. Impact of green bonds on green brand equity of Yes Bank The Green brand equity has definitely increased with Green Bonds in India being synonymous with YES BANK’s issues in the first year. The market has also strengthened following YES BANK’s first issuance, with others following suit, demonstrating success.

EXIM Bank: In March 2015 EXIM bank issued $500 million of green bonds at a rate of 2.75%.It was subscribed by 3.2 times showing tremendous interest among investors. This issue also led to a strong demand across 140 accounts.The bank has also used the net proceeds to finance socially responsible projects in other countries.EXIM bank has also issued bonds to Urdashi,Australian Dollar,Singapore dollar and Samurai bond market leading to a sharp increase in market segments.According to the managing director of EXIM Bank “Banks in India do lot of green projects and renewable energy,solar wind and so on,so lot of banks and financial institutions will be interested in tapping this market..Also a lot of actual players like Suzlon energy,Inox energy,Wind energy and other companies will be tapped. One of the major advantages acruing from green bonds initiative is increased capital flow and financing across all stages of development. Impact of green bonds on green brand equity of EXIM Bank :There has been overwhelming response of green bonds issued by Exim bankThe sale of green bonds generated an income of $500 million for five year green bond investors.Issue of green bonds have helped investors to expand investors base.All this has worked to increase the brand image of EXIM bank.On the basis of this we can conclude that green bonds have a positive impact of green brand equity of banks in India.

AXIS bank: has launched the first internationally listed and certified green bonds raised 500 million to finance climate change projects. The bond is certified by Climate bonds standard board (CBSB) and is listed in London Stock exchange (LSE). This step of Axis bank is the first ever US dollar green bond by an Indian private sector bank. Not only that it is the first labelled climate bond by bank from Asia,The encouraging response of the investors towards green bonds has brought number of benefits to the country as well as the bank. The issue of green bonds has led to oversubcription in light of which prices had to be revised.In terms of contribution it has palyed a major role in increasing Asia contribution globally. Impact of Green bonds on Green Brand Equity of Axis Bank The overwhelming response of green bonds is indicative of enhancing the brand image not only in India but also in global markets Brand image is one of the major drivers of brand equity.Hence, on the basis of this it can be concluded that green bonds issued by Axis bank has enhancecd the green brand equity of Axis bank.

IDBI

IDBI bank: is one of the first few public sector banks to issue green bonds .It raised 350 million from green bonds to fund clean energy projects.The issue received an overwhelming response and was over subscribed three times The proceeds will be allocated to solar energy projects, wind energy projects, biomass projects and hydro power projects. Owing to the increasing response from the investors on green bonds, there are number of benefits which accrue to the firms on account of issue of green bonds like cost competitiveness, low transactional costs.It is an imperative attempt by IDBI to join goverment’s initiative of a greener economy. Impact of green bonds on green brand equity of IDBI bank Green bonds have a positive impact on green brand equity of banks in India as green bonds bring number of advantages which enhancesgreen brand image which is one of the major driver of green brand equity. Therefore, we can conclude that green bonds have helped to enhance the brand equity of the banks as it enhances the brand image which is one of the major driver of green brand equity.

 

 

References

https://www.eximbankindia.in/green-initiatives

https://web2.axisbank.com/download/Axis-Bank- concludes-issue- US$500-million- Asia's-first-

certified-Green- Bonds-Bank.pdf

http://www.thehindu.com/news/cities/mumbai/business/Axis-Bank- unveils-India%E2%80%99s- first-

certified-green- bond-on- LSE/article14388988.ece

http://www.idbi.com/green-bond.asp

http://www.livemint.com/Industry/hdjc06LrzjGD3fZKCOpq1M/IDBI-Bank- raises-Rs2310- crore-via-

green-bonds.html