India Ratings and Research (Ind-Ra) has said that green securitisation could emerge as a potential tool for bridging the deficit and financing the debt required to achieve India’s net-zero goal by 2070. Green securitisation is a securitisation tool used for financing green assets and spur investments in green assets or sustainable solutions. This form of securitisation can help to facilitate debt financing to meet the funding requirements of entities and at the same time achieve climate objectives and move towards a more sustainable future. While green securitisation is at initial stage, it has the potential to grow. Green securitisation can happen in two ways.
The underlying assets being securitised are green assets. These include assets such as loans to finance electric vehicles (EVs), green buildings, loans for renewable energy generation, loans for other activities as defined under the Green Security definition by International Capital Market Association (ICMA) or Climate Bond Initiative (CBI).
Loan proceeds are utilised by borrowers for green activities defined as per ICMA or CBI.
Ind-Ra asserts that use of proceeds could be prioritised to kickstart the market, as there are insufficient green assets available for securitisation.
“We expect green asset classes such as EV financing to gain traction in the near term. Besides lending for energy-efficient properties and green home renovations, solar panel financing could develop in the medium to long term”, says Jatin Nanaware, Senior Director, Structured Finance, Ind-Ra.
EV penetration
Ind-Ra expects EV penetration could translate into a Rs 30000 crore green auto ABS investible market by 2030. As per Ind-Ra’s securitised auto ABS portfolio of two wheelers (2W), electric-2Ws are less than 2% of the vehicle loan pool. This is a medium-term opportunity as the proceeds can be tagged green and securitised.
Solar
Ind-Ra believes solar rooftop loans are not present in significant volumes for securitisation, but could emerge in the medium term, led by enhanced government support and subsidies. Schemes such as PM Surya Ghar which provide loans in the range of INR 200,000-600,000 for the installation of solar rooftops can help grow this asset class.
Lending for energy-efficient properties and green home renovations
Ind-Ra expects green housing loans to make up a potential investible market for securitisation in the medium to long term. This could be aided by government initiatives such as low-interest loans and building projects with green certifications, besides various other initiatives such as tax benefits, fast-track approvals, expedited inspections and reduced building fees. Certifications such as LEED, IGBC rating systems, and GRIHA ratings add credibility to projects and help approve their pro-environment claims.
