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The framework for India's proposed sovereign green bond is almost ready and the instrument will be issued in the second half of the current financial year, a senior finance ministry official said.

"We have spoken to the World Bank. They are providing us with some guidance. We are getting the framework vetted by a second party that is completely independent," the official told Moneycontrol on condition of anonymity.

"It should be part of the H2 borrowing calendar," the official added.

The Centre will announce its borrowing schedule for the second half of FY23 at the end of September.

Announced by Finance Minister Nirmala Sitharaman in her FY23 budget speech in February, the green bonds will be part of this year's record gross borrowing budget estimate of Rs 14.95 lakh crore.

No hike in market borrowing

With the Reserve Bank of India (RBI) switching certain government securities just a couple of days before the presentation of the budget and the Centre pegging its first-half borrowing at Rs 8.45 lakh crore, the second-half borrowing amount works out to be Rs 5.86 lakh crore.

The finance ministry official quoted above said there was no reason why the Centre would increase its stated borrowing programme in October 2022-March 2023.

"Unless there are new expenditures which come up between now and the end of FY23, we will meet the fiscal deficit target," the official added.

The central government has set itself a fiscal deficit target of Rs 16.61 lakh crore, or 6.4 percent of GDP, for FY23. Data released on August 31 showed the government's finances to be in good shape in April-July, with the fiscal deficit at only a fifth of the full-year target at the end of the first third of the year. Comfort on the receipts front has also allowed the Centre to frontload the transfer of funds to states.

Green bond rates

The official was insistent the government wanted a "very fine rate" on the green bonds when they are finally issued.

"A discount of 2 basis points, 5 basis points, or 10 basis points is not enough. We are already borrowing from the market. And putting an entirely new framework for green bonds into place takes effort. So it should be worth the effort. We would like to see a very, very attractive discount (on prevailing government bond yields)."

Further, the sale of green bonds in subsequent years would depend on the interest rate demanded at the maiden issue.

"The rates should give us some value for the effort we put in. The discount should incentivise me to issue more of these bonds," the official argued.

When asked if the framework for the green bonds provided any incentives to investors so that they would ask for lower interest rates, the official said there was not going to be any such feature as the demand for these bonds had come from the market.

"The government is borrowing and is committed to provide resources to these green projects in any case," the person said, adding that the list of these projects is ready.

“We just have to figure out which of them would lead to the quickest absorption of money because we are not inclined to keep the funds with us."

A final call is also to be made on whether the government will disclose the full list of projects which will be financed through the proceeds of these green bond issuances.

"I think that should be necessary. If we tell the investors where the money is going, they will be more convinced," the source added.

The rise in one-year median marginal cost of fund-based lending rate (MCLR) of commercial banks moderated to 10 basis points (bps) in August from a hike of 15 bps in July. It has risen 40 bps since June.

This comes on the back of the Reserve Bank of India (RBI) raising the repo rate by 140 bps to 5.4 per cent in the current tightening cycle.

Anil Gupta, co-group head, financial sector ratings at ICRA, said banks will be calibrated in revising the MCLR, as they have to be competitive vis a vis other sources of borrowings, i.e. bonds and external commercial borrowings. Also, they have leeway in passing on cost of funds to borrowers.

Bankers, too, indicated that the MCLR would continue to rise but not to the extent of the increase in the policy rate. Besides, much of the MCLR-linked lending is to corporate houses, which have access to other sources of funding, the bankers pointed out, explaining the reason for the moderation in the MCLR hike in August.

Thus far in financial year 2022-23 (FY23), the one-year median MCLR for commercial banks has risen by 40 bps from 7.25 per cent in April to 7.65 per cent in August, according to data from the RBI.

The current MCLR rates are still lower than the rates that prevailed in the previous monetary tightening cycle of 2018, when they had moved from 8.3 per cent in February 2018 to 8.8 per cent in January 2019.

This was done in anticipation of rate hikes by the RBI, which had increased the policy repo rate by 25 bps to 6.25 per cent in June 2018, then again by 25 bps to 6.5 per cent in August 2018.

The current increase in the MCLR is a reflection of banks passing on the rise in cost of funds to borrowers, especially after the RBI raised the repo rate by 40 bps in May in an off-cycle policy review.

Different pace

Among the banking groups, foreign banks raised the one-year MCLR by 90 bps in the five-month period from 6.10 per cent in April to 7 per cent in August.

The pace was moderate for public sector banks, with median one-year MCLR rising by 40 bps to 7.65 per cent in August, from 7.25 per cent in April. For private sector banks, the median rise was just 20 bps in the period at 7.53 per cent in August.

While lending rates rose by 25 bps in the April-July period, the domestic term deposit rates rose only 19 bps from 5.03 per cent in April to 5.22 per cent in July. Since deposit rates rise with a lag, banks are still in a position to absorb some increase in the cost of funds.

In the 2018 cycle, the weighted average domestic term deposit rates grew from 6.54 per cent in January 2018 to 6.91 per cent in January 2019.

Prakash Agarwal, director and head – financial institutions, India Ratings, said term deposit rates will continue to rise, but banks will be circumspect in raising them. Those with weaker deposit franchise and lower share of Current Account and Savings Account (CASA) may have to offer higher rates to attract funds.

In the current cycle, foreign banks have marched ahead of their public and private sector rivals in terms of raising interest rates. Their weighted average domestic term deposit rates rose by 67 bps from 3.42 per cent in April to 4.09 per cent in July. State-owned banks hiked their term deposit rates by 16 bps to 5.27 per cent, and private lenders by 17 bps to 5.3 per cent, the RBI data showed.

State-owned Indian Bank has revised the marginal cost of funds-based lending rates (MCLR) by 0.10 per cent across tenors from Saturday, which will make most of the consumer loans costlier.

It has also revised the lending rates benchmarked on treasury bills.

The Asset Liability Management Committee (ALCO) of the bank has reviewed the Benchmark Lending Rates and decided on an upward revision in MCLR and TBLR across various tenors, the lender said in a regulatory filing on Thursday.

The benchmark one-year MCLR will be 7.75 per cent from September 3 against the existing rate of 7.65 per cent.

The one-year rate is used to fix most consumer loans such as auto, personal and home loans.

The overnight to six months tenor MCLRs are raised by 0.10 per cent each in the range of 6.95 to 7.60 per cent.

Besides, the lender also revised the treasury bills benchmark lending rate (TBLR) in the range of 5.55 per cent to 6.20 per cent for various tenors.

Can a project that was granted a single licence be split into phases without being unfair to existing buyers? Can completed phases be delinked from newer ones, which can then be redesigned without the approval of existing allottees?

These issues were first discussed at the Urban Development Conclave in February, where KK Khandelwal, Chairman, Gurugram Real Estate Regulatory Authority (RERA), raised the issue of the difficulty in getting the consent of two-thirds of the allottees for any changes in the design of unbuilt phases. Three RERA chairmen — from Gujarat, Uttarakhand, and Rajasthan — indicated that the pro

Why Redesign?

The bigger issue is why does a project have to be redesigned after RERA registration? The first reason is that with new policies such as transit oriented development (ToD), extra floor area ratio (FAR) is offered to developers building along these corridors. Also, there is extra built-up area available by way of transfer of development rights (TDR), which a developer can utilise on this project, if the supporting infrastructure is available. A third reason why designs need to be changed is because of rapid changes in consumer preferences, necessitating changes to make the project more saleable in the present scenario.

Going by past experience, these design changes have been detrimental to those already residing in the vicinity. The prime example is that of the Supertech twin towers that were demolished on August 28 by a Supreme Court order because they violated the minimum setback principles from existing towers, thus spoiling their environment, and ambience.

Two-Third Consent

In Haryana, a new proposed policy was uploaded, without much fanfare, by the Department of Town and Country Planning (DTCP) for suggestions from consumers on the draft notification issued on July 18. A policy for allowing phasing in licensed colonies and seeking consent from two-third of the allottees in case of revision in the layout plan/building plan for co-ordinated functioning of statutory authorities has in-principle been approved by the state government. The co-ordination was under the Haryana Development and Regulation of Urban Areas Act 1975; the Real Estate (Regulation and Development) Act 2016, and the Haryana Apartment Ownership Act 1983. It rests upon a January 25, 2021, notification by the DTCP.

The constitutional validity of this policy has been challenged in the Punjab and Haryana High Court.

The proposed policy applies to parts of projects in licensed colonies, which are yet to be registered with the RERA. The first objection by consumer bodies is to the clause, “An undertaking from the coloniser regarding such non-registration of the colony or such part of it shall be considered adequate along with such disclosure.” Consumer bodies say that this is in violation of the protection they receive under Section 14 of the RERA Act which mandates approval by two-thirds of existing allottees before any revision in the plan can be allowed. The policy seeks to redefine what amounts to revision of plans and which revision will require previous written consent of two-thirds of the allottees.

Short-Changing Buyers

So, what can happen when this proviso is enacted? Without any stipulation on the size or composition of each phase, consumers fear that a few completed towers would be converted into a completed phase, and they may lose their right to protest against injustice. While the entire colony was planned as a whole and complement each other in services, it is quite possible that the developer may place the sewage or garbage treatment facility close to the old, completed phase, and they may never be able to protest as they are part of a completed phase.

Also, if the developer consolidates a few extra acres adjoining the boundaries of the existing layout, they may well take the remaining land from the existing project(s) and turn that into a new phase/project. With greater FAR allowed because of the ToD policy and some TDR purchased from other developers, the new phase can be made premium, and viable.

However, it might infringe on the rights of the existing completed phases in terms of club house or other facilities, making those crowded and less premium. For instance, a Gurugram-based developer used the space for amenities to build another tower at the cost of promised amenities, by arbitrarily revising plans for the low-rise economically weaker section wing to a high-rise tower.

Problem Clause

There are parts of the notification which consumers are interpreting as developer-friendly. For instance, the one-sided developer-led disclosure clause quoted above seems to violate the rights of the consumer (home buyer). A simple disclosure by the coloniser (developer) to the authority, without any clause of intimation to existing consumers seems to reek of collusion. In an ideal world, the safeguard of RERA approval to the final plan seems all right, but with the lack of trust in the market, consumers are still wary.

The clause in the proposed amendment that a phase can be deemed complete with essential services, seems misleading as essential services have not been spelled out. Without that, developers do not have to follow any benchmark in minimum services.

Future projects can be planned in phases with clear announcement of services and facilities in each phase. The marketing then should also be in accordance with that. Consumers of the phase can then complain to RERA if the promised facilities are not provided. However, for legacy projects that have been planned and executed as single entities with common areas being shared across the project, phasing is a tricky business that can lead to consumers being short-changed.