BoB's success spurs more public peers to plan green bond issues

Core Viewpoint - India's state-run lenders are preparing for a new round of green bond issuances, with Bank of Baroda recently issuing a ₹10,000 crore, seven-year green infrastructure bond at a yield of 7.10% [8][9] Group 1: Market Activity - Bank of Baroda's bond issuance was notable as it was priced at a spread of approximately 40 basis points over the benchmark 10-year government bond yield, which was around 6.72% at the time [5][9] - Other public sector lenders, including Union Bank of India and State Bank of India, are also planning to raise significant amounts, with Union Bank looking to issue ₹10,000 crore and SBI around ₹7,500 crore [8][9] - Several borrowers have withdrawn planned bond sales due to rising yields influenced by global market volatility, indicating a cautious approach among investors [9] Group 2: Investor Behavior - Life Insurance Corporation (LIC) and the Employees' Provident Fund Organisation (EPFO) fully subscribed to Bank of Baroda's bond issue and are expected to participate in upcoming issuances from Union Bank and SBI [9] - There is a noted limited appetite among investors for long-tenor bonds, as many companies find bank loans more attractive this year [6][9] - The current market conditions have led to a thin supply of corporate bonds, with unusual investment behavior observed, such as LIC and EPFO investing at 7.10% for seven years when similar yields are available for shorter maturities [6][9] Group 3: Regulatory and Strategic Insights - India currently lacks regulatory obligations for institutions to allocate funds specifically to green issuances, which may affect the attractiveness of such bonds [7][9] - There are indications that the government may be encouraging public sector institutions to support PSU bank bonds, although this could impact the returns for retail investors [7][9]