The Hindu Business Line : Municipal bond market to see slew of issues

“Funding of this magnitude (Rs 30,000 crore) and tenure will require urban local bodies to approach the capital markets, since the banking system would typically not take exposure of such scale and duration.”

Our Bureau

Mumbai, Dec 10 The domestic municipal bond market is expected to witness a number of fresh issues as municipalities in the country need to raise long-term funds to the tune of Rs 30,000 crore to implement projects under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

According to rating agency Crisil, a major part of this fund will have to be raised through issue of bonds as banks would not be able to provide such long-term finance with the minimum repayment time required being 10 years.

Under JNNURM, the Government will provide 60 per cent of the fund, while the balance 40 per cent will have to be contributed by the urban local bodies (ULBs).

Ms Roopa Kudva, Managing Director and CEO of Crisil, said funding of this magnitude (Rs 30,000 crore) and tenure will require ULBs to approach the capital markets, since the banking system would typically not take exposure of such scale and duration.

Optimal instrument

“Municipal bonds are set to emerge as optimal instruments for infrastructure financing, owing to their long maturity,” said Ms Kudva, addressing a seminar on municipal bonds jointly organised by Crisil and USAID.

Currently, the municipal bond market in India has only 13 issues amounting to Rs 733 crore. This represents just 0.1 per cent of the Indian bond market (non-SLR) as compared to 10 per cent in the US.

Mr M. Damodaran, Chairman of SEBI, while underlying the importance of developing the municipal bond market, stressed the need for introduction of flexible instruments taking into account the revenue position and fund requirements of municipal corporations. The standard bonds might not suit all municipalities, he said.

Enabling mechanism

Referring to issues that municipalities need to address before going for raising funds from the capital market, he said there is also a need for an institutional mechanism to ensure that the revenue stream of municipalities is not affected by the change in the political regime.

The first municipal bond in India was issued in 1998 by the Ahmadabad Municipal Corporation.

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