India's green bond premium persists as insurers seek long-term sustainable assets
India's sovereign green bonds continue to draw steady demand, with investors accepting a lower yield compared with regular government securities. This persistent premium, known as a 'greenium', has strengthened market confidence that the government can increase the supply of these bonds in the second half of the fiscal year without disrupting demand.
On Friday, New Delhi sold 50 billion rupees (about $524 million) of 30-year sovereign green bonds at a greenium of four basis points. This matched the average premium of four basis points for the first half of the fiscal year, the highest since India began issuing green bonds in the second half of fiscal 2023. A greenium is the lower yield that investors accept in exchange for financing environmentally sustainable projects.
Insurance companies have been a key driver of this demand. Shobit Gupta, chief investment officer at Generali Central Life Insurance, explained that green bonds are eligible for classification under the infrastructure category, which is beneficial for insurers from both asset allocation and regulatory perspectives. He added that current demand-supply dynamics have resulted in green bonds trading richer than comparable conventional government securities.
With the latest issuance, India now has sovereign green bonds worth 877 billion rupees ($9.2 billion) outstanding. The 30-year maturity segment has become the most popular, crossing the 500 billion rupee mark.
Strong demand has prompted market participants to suggest a modest increase in supply, as insurance companies managing growing investment portfolios find limited substitutes for these long-term instruments. Sachin Bajaj, chief investment officer at Axis Max Life Insurance, said the market is well positioned to absorb higher supply in the second half of FY27, particularly if issuance is concentrated in the longer part of the maturity curve. He attributed the sustained demand to insurers' asset-liability management (ALM) requirements.
India's journey with green bonds has not been uniform. When the government began issuing five-year and ten-year green bonds in January 2023, it faced weak demand and had to cancel or reduce the size of some auctions. In some cases, these bonds were sold at yields higher than equivalent conventional government bonds, reflecting a negative greenium.
The trend reversed when the government shifted to issuing 30-year green bonds over the past 18 months, resulting in a consistent greenium. Rahul Bhuskute, chief investment officer at Bharti AXA Life Insurance, noted that long-dated green bond issuance has remained steady over the last three fiscal years, adequately matching current investor demand.
Market analysts say the sustained interest is a positive signal for India's climate financing goals, though they caution that future issuance must be carefully calibrated to avoid oversupply. The government's borrowing plan for the second half of the fiscal year will be watched closely for any adjustment in green bond allocation.
