nicipal bonds over the next five years
by the larger municipals alone with
investment grade. Even the market
regulator SEBI has recently warmed
up to the idea of Municipal Bond
and is working on strengthening the
municipal bond markets in India.
“There is massive capital invest-
ment need in municipal infrastruc-
ture and funds from programmes
such as Jawaharlal Nehru National
Urban Renewal Mission (JN-
NURM) can only partly meet the
requirement. Therefore, to meet
their financing needs, the munici-
palities have to seek recourse to
other means including issuance of
municipal bonds,” SEBI said in its
consultation paper on the Munici-
pal Bonds issued last year.
“Conservative Indian investor
mainly invests in fixed deposits,
small saving schemes or gold. Bonds
issued by municipalities having
good financial track record would be
a good alternative investment op-
portunity for such conservative in-
vestors, as it provides reasonable re-
turn with less risk, which in turn
may accelerate the capital markets,”
SEBI said.
SEBI has issued a detailed guide-
line for municipalities to raise
money from the bond market. Un-
der the proposed norms, SEBI has
put in place several conditions for
city corporations that include man-
datory credit rating of the munici-
palities and it must not have de-
faulted on any loans in last one year.
Also the municipalities must con-
tribute at least 20 per cent of the
project cost. Municipal authorities
having negative net worth and
those which have defaulted on pay-
ments to financial institutions
would be barred from issuing the
bonds.rather than public offers. Also only
financially strong, large municipal
corporations had the direct access to
capital markets.
Reviving the Market
The massive fund requirement for
the Smart Cities Mission have re-
vived the prospects of Muni Bonds
and the policy makers are looking at
it as a potent tool to fund the city In-
frastructure projects beyond PPP
and the government grants.
According to Care Ratings, a po-
tential of Rs.1,000-1,500 crore per
annum could be raised through Mu-