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News- The Ministry of Housing and Urban Affairs organised a high-level consultation to discuss strategies for deepening the municipal bond market.
About Municipal Bonds
A municipal bond is a debt instrument issued by municipal corporations or urban local bodies to raise funds from investors.
Evolution in India:
- Municipal bonds was introduced in India during the 1990s, following the process of urban decentralisation and the reforms initiated by the 74th Constitutional Amendment Act, 1992, which empowered ULBs to act as independent entities.
- Municipal bonds were first issued by the Bangalore Municipal Corporation (BMP) in 1997.
- The Ahmedabad Municipal Corporation (AMC) bond of 1998 was the first issue to be rated and listed
Concept and Mechanism: Municipal bodies borrow funds from investors and repay principal with interest over a specified period. Investors include mutual funds, banks, insurance companies, and retail investors.
Purpose: The funds raised are used to finance socio-economic development and urban infrastructure projects such as water supply, waste management, transport, and housing.
Regulatory Framework and Institutional Support
- Regulation: Securities and Exchange Board of India (SEBI) regulates issuance through the Issue and Listing of Municipal Debt Securities Regulations, 2015.
- Policy Support: MoHUA provides policy support and coordination with urban local bodies.
- Financial Oversight: RBI supervises financial transactions and ensures fiscal compliance.
- Credit Assessment: Credit rating agencies evaluate the creditworthiness of municipal bodies.
Types of Municipal Bonds
- General Obligation Bonds: Repayment is secured by overall municipal revenue, including tax income.
- Revenue Bonds: Repayment comes from income generated by specific projects.
- Green Municipal Bonds: Issued to fund environmentally sustainable infrastructure projects.
