New Delhi raised 80 billion rupees (about $981 million) via five-year and 10-year green bonds on Wednesday. It plans to use the proceeds for 'green' projects, such as solar power, wind and others, that help reduce the economy's carbon footprint.

"We saw good demand from state-run banks and insurance companies, with the latter cornering one-fourth of the auction today," a senior treasury official at a state-run bank said, requesting anonymity as the information is not public.

Life Insurance Corporation of India was "an active participant and may have bid for around 20-25 billion rupees. A similar quantum must have been bid by state-run banks," the official added.

Traders further said the large state-run insurance company's purchase was focused on the 10-year paper, while state-run banks spread their purchases across both securities up for offer.

The Reserve Bank of India sold 40 billion rupees of five-year bonds at a coupon rate of 7.10%, and a similar amount of 10-year bonds at a 7.29% coupon. The bond yields were lower by 5-6 basis points than comparable government securities.

The bids received were worth more than three times the amount for the five-year note and nearly five times for the 10-year paper. The five-year bond was sold to 32 investors and the 10-year to 57 investors, central bank data showed.

Traders said that apart from state-run players, there was some interest from private banks as well as private insurance players.

The demand from insurers comes after the industry's regulator said earlier this month that insurance companies will be allowed to classify their sovereign green bond purchases as infrastructure investments.

Meanwhile, participation from foreign investors was limited, confirmed traders with two foreign banks and two primary dealerships.

Foreign investors generally prefer investing in dollar-denominated bonds for their green mandates and that may have been one reason for their lower participation in the sale.

Ahead of the bond sale, the RBI had removed foreign investment curbs on these securities.

Government officials were not immediately available for comment. ($1 = 81.5540 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by)

By Dharamraj Dhutia