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K.R. Srivats

New Delhi, July 7 Municipalities of Greater Mumbai, Navi Mumbai, Kalyan Dombivili, Mira-Bhyandhar, Pune, Thane, Ajmer, Indore, Bhopal and Jaipur are all “investment grade”, according to Fitch Ratings, a rating agency.

An investment grade implies that these urban local bodies (ULBs) could carry out timely debt servicing and were in a position to meet financial commitments.

However, three of the first batch of 13 ULBs rated by Fitch Ratings, which was mandated to rate 21 ULBs, did not make it to the investment grade.

These three municipalities were Jabalpur, Ujjain and Guwahati and all of them have been categorised under ‘speculative grade’. Fitch Ratings expects to assign ratings to the remaining eight ULBs in the coming days. The Ministry of Urban Development had last year commissioned rating of urban local bodies in 63 cities under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), which involves capital expenditure of Rs 1,20,500 crore up to financial year 2012.

The JNNURM, which would be in place for seven years from 2005-06, aims to encourage reforms and fast track the planned development of identified cities.

Assigning an ‘issuer rating’ to the 13 ULBs also means that they are now in a position to access the debt market to raise resources for improving the civic infrastructure in Indian cities. Issuer ratings provide an independent opinion about the capability of 13 municipalities to meet financial obligations. From these ratings, the market gets a signal about the credit quality of the issuer.

The ratings could potentially lead to the creation of a municipal bond market in India, according to Mr William Streeter, Fitch’s Managing Director & Head of Global Infrastructure & Project Finance, Asia Pacific. Currently, India does not have a well developed or a deep municipal bond market as seen in developed countries like the US.

For many ULBs, sometimes enough internal resources are not available to meet the resource requirements for improving civic infrastructure.

They have to look to the bond market or banks for augmenting their resources.

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