India’s transition to a low-carbon economy has brought green financing instruments to the fore. Among these, bonds, which are fixed-income instruments issued to raise capital, have emerged as a key enabler for renewable energy investments. Governed by frameworks from the Ministry of Finance (MoF) and the Securities and Exchange Board of India (SEBI), they allow government agencies, public finan-cial institutions and corporates to access dedicated capital pools for clean energy deployment.
Between January 2025 and June 2025, green bond issuances in India’s domestic market crossed Rs 131.42 billion, according to Renewa-ble Watch Research. While investor interest varied, the period saw a steady dip in momentum despite large issuances led primarily by public sector issuers.
Renewable Watch delves into the bond market in the renewable space, recent issuances, policy developments, challenges and the future outlook…
Issuance activity
NBFC bond activity
Non-banking financial companies (NBFCs), namely, the Indian Renewable Energy Development Agency (IREDA) and REC Limited, have been the most active issuers in the bond segment for renewable energy projects. IREDA continues to expand its capital base through mul-tiple instruments. In March 2025, it issued Rs 12.47 billion in perpetual Tier I green bonds at a coupon rate of 8.40 per cent per annum. In the same month, a Rs 9.10 billion issuance of 10-year Tier II green bonds at a 7.74 per cent per annum coupon rate followed. Both issu-ances were privately placed with institutional investors and aimed at strengthening capital adequacy ratios. Further, IREDA’s approach suggests a shift from project-specific funding to integrating green-labelled instruments as part of its broader balance sheet management.
Meanwhile, REC Limited led the market in issuance volume. In April 2025, it raised Rs 50 billion and Rs 30 billion via five-year bonds at 6.87 per cent per annum coupon, and Rs 20 billion via 10-year bonds at 6.86 per cent per annum coupon. Then, in May 2025, the company raised Rs 56.35 billion through private placement bonds, with Rs 30 billion in two-year eight-month bonds at 6.52 per cent per annum coupon, and Rs 26.35 billion in 10-year 11-month bonds at 6.81 per cent per annum coupon. All REC issuances were rated “AAA” by vari-ous rating agencies and listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange, ensuring greater liquidity and vis-ibility for institutional buyers. What stood out was REC’s use of differentiated maturities and pricing to cater to diverse investor needs, from short-term bonds of about three years to those nearing 11 years. This structuring indicates that the bond market is beginning to support more customised profiles, even within standard regulatory frameworks.
In a further diversification effort, REC, in June 2025, received formal approval from the Central Board of Direct Taxes to issue Rs 50 billion in zero-coupon bonds (ZCBs), with a 10-year six-month maturity. The previous ZCB issuance, in FY 2024-25, had been nearly seven times oversubscribed and carried a 6.25 per cent yield, around 100 basis points lower than prevailing market rates at the time. The strong market response to ZCBs has enabled REC to explore more cost-efficient, tax-aligned funding pathways.
Sovereign bond activity
Adding to the sovereign bonds pipeline, in June 2025, the Reserve Bank of India (RBI) attempted to reissue Rs 50 billion worth of sover-eign green bonds (SGBs). These 30-year bonds, with a 6.98 per cent coupon, were part of a broader Rs 300 billion government securities auction. However, all bids were rejected after investors demanded higher yields, despite receiving over Rs 10.94 billion in competitive bids.
This was not an isolated case. Since their debut in February 2023, when both five-year and 10-year SGBs were oversubscribed over four times, investor interest has shown sharp fluctuations. While the debut auction attracted a modest “greenium” of six basis points, subse-quent auctions have struggled to maintain momentum.
In May 2024, the RBI cancelled the first SGB auction of FY 2024-25 entirely, declining all bids against a Rs 60 billion notified amount due to the absence of a pricing advantage. In August 2024, the second auction received only Rs 16.97 billion in bids at a 6.90 per cent cut-off, well below the Rs 60 billion on offer. In November 2024, 70 per cent of a Rs 50 billion offering had to be devolved on primary dealers at yields between 6.78 per cent and 6.84 per cent. In January 2025, the RBI partially devolved Rs 39.45 billion worth of 10-year SGBs on primary dealers after weak investor interest. These cases underscore persistent investor hesitation, narrow market participation and the lack of clear pricing incentives for longer-tenor green instruments in India’s sovereign bond market.
Municipal bond activity
Municipal bodies have begun using capital markets to fund decentralised, climate-aligned infrastructure through green bonds. In April 2025, Ghaziabad Nagar Nigam issued India’s first certified green municipal bond under the Swachh Bharat Mission-Urban, raising Rs 1.5 billion for a tertiary sewage treatment plant under a hybrid public-private partnership model. The project aimed at industrial water reuse, and was notable for its advanced treatment technologies and structured financing.
In June 2025, Pimpri-Chinchwad municipal corporation launched a green bond to fund sustainable mobility projects. The Rs 2 billion is-sue was oversubscribed over five times, receiving strong investor interest, and was listed on the BSE. Additionally, it attracted a Rs 200 million incentive under the Urban Challenge Fund, signalling policy support for the bond. Both issuances point to the emerging potential of municipal green bonds as a financial instrument for cities to fund climate-related infrastructure independently.
Policy and regulatory landscape
To strengthen the regulatory landscape, the MoF released a draft Climate Finance Taxonomy in May 2025. The taxonomy defines sovereign and corporate green bonds as core instruments and seeks to align India’s green finance framework with international standards. By standardising definitions and activity classifications, it aims to enhance transparency, prevent greenwashing and channel credible invest-ments through the bond market.
In June 2025, SEBI introduced enhanced disclosure norms under a regulatory framework for environmental, social and governance (ESG)-labelled debt instruments, including sustainability-linked bonds. It mandates verified use of proceeds and stricter oversight of ESG ratings. These steps are intended to improve investor confidence and curb greenwashing, especially in the debt and bond markets.
Challenges and the futue outlook
India’s green bond market has seen growing maturity in 2025. Issuance activity by NBFCs and municipalities demonstrates alignment between capital structuring and renewable energy financing needs. The introduction of a national taxonomy and stronger disclosure norms will improve regulatory clarity.
Despite this, several structural challenges remain. One is the absence of a “greenium”, which is the marginal pricing benefit typically ex-pected from green-labelled bonds. In both sovereign and NBFC cases, yields have largely mirrored those of conventional bonds. This leaves issuers with little incentive to bear the additional compliance costs.
Market depth also remains a concern. The limited supply of outstanding green bonds issues means investors who purchase green bonds find it difficult to resell them later due to the lack of a big or active secondary market in India. This makes green bonds less attractive for investors seeking liquidity, especially for big institutional investors in the renewable energy space who tend to prefer more liquid and easi-ly tradable investments. This was evident in the underwhelming response to the RBI’s SGB auctions in November 2024 and January 2025, where only around 30 per cent and 21 per cent of the notified amounts, respectively, were subscribed by market participants, as per several media sources. Further, in June 2025, the RBI rejected all bids for 30-year SGBs due to investors’ demand for higher yields. These in-stances highlight that without better liquidity and active trading, green bonds may continue to face limited uptake, particularly from long-term institutional players.
Labelling issues are also a challenge. According to the Council on Energy, Environment and Water’s “Unlocking green finance for India’s urban local bodies through municipal green bonds” report, 83 per cent of municipal bond proceeds since 2015 had funded green-aligned projects, yet lacked formal green labels. Green-labelled municipal bonds benefited from a 50-basis-point lower spread, underlining the missed cost advantages due to improper classification.
The challenge of inconsistent labelling is not confined to municipal bonds alone. It persists across various categories of issuers and adds to the fragmentation in the market. While the new climate finance taxonomy by the MoF is expected to improve standardisation and ad-dress the labelling challenge, regulatory compliance alone is unlikely to drive demand unless complemented by targeted incentives, such as credit guarantees and tax exemptions.
Looking ahead, the market’s next phase of growth may depend on more active participation from retail investors, tax-neutral investment vehicles and further institutional mandates. As India expands renewable energy deployment and investments in the energy transition, bonds may continue to play a role, but their effectiveness will depend on how quickly the structural hurdles are addressed.
Karan Sharma