To give a boost to the Centre’s ‘smart cities’ initiative, market regulator SEBI on Tuesday proposed a new set of norms for listing and trading of municipal bonds on stock exchanges so as to channel household investments into urban infrastructure development.
SEBI has released a concept paper and invited comments from the public.
According to the regulator, a municipal authority issuing the bonds will have to obtain rating from a credit rating agency registered with SEBI.
Also known as ‘Muni Bonds’, these instruments will have a minimum tenure of three years. Muni Bonds are popular in the West where municipalities raise a bulk of their funding requirements through these instruments.
In India, however, issuances of such bonds have totalled ₹1,353 crore till now. The tax structure is seen as the main impediment to Muni Bonds attracting funds. Data show that such bonds attract money if made tax-free.
Vikram Dhawan, Director, Equentis Capital, said: “It is necessary for the government to create a niche to attract trading in municipal bonds. Moreover, it is unlikely these bonds are going to get attractive rating.”