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• The Securities and Exchange Board of India (SEBI) is reviewing the 2015 municipal debt regulations to make it easier for local bodies to raise funds.
• The proposed changes will allow more urban local bodies and statutory organisations to issue bonds for city-level infrastructure and development projects.
• A new framework for 'Green Muni Bonds' has been introduced to attract investment specifically for sustainable and environmentally friendly civic initiatives.
• The regulator aims to improve transparency and financial reporting standards to encourage institutional investors to fund public utility and smart city work.
The Securities and Exchange Board of India has proposed a series of updates to the rules governing municipal bonds to help urban local bodies access the capital markets more effectively. In a consultation paper released this week, the regulator suggested changes to the 2015 Municipal Debt Securities Regulations. The move follows several years of low activity in the municipal bond market, where only a few cities have successfully raised capital through debt instruments. Advertisement
Under the current proposal, SEBI intends to expand the list of organisations eligible to issue these bonds. This would include various statutory bodies and special purpose vehicles responsible for urban development, rather than just large municipal corporations. The regulator noted that broadening this base will allow smaller local governments to use their revenue from property taxes and other fees to fund long-term infrastructure projects like water systems and waste management.
A key part of the proposal is the creation of a formal structure for ‘Green Municipal Bonds’. This initiative is intended to help cities raise money specifically for projects that have a positive environmental impact. The regulator stated that this would help India meet its sustainability targets by attracting investors who focus on environmental and social governance. To support this, the paper suggests relaxing certain net worth requirements for issuers, provided the bonds have a high credit rating from approved agencies.
To protect those investing in these bonds, SEBI has included new rules for financial transparency. Local bodies will be expected to use escrow accounts to ensure debt is paid on time and must provide clear reports on how the borrowed money is being spent. The regulator observed that inconsistent accounting across different cities has previously discouraged institutional investors. By standardising these reports, the proposal aims to make municipal bonds a more reliable option for insurance companies and pension funds.
The paper also considers reducing the minimum investment amount to allow more individual investors to buy these bonds. Industry experts believe that these changes could help bridge the funding gap for Indian cities that are currently struggling to keep up with rapid urbanisation. The regulator has asked for feedback from the public and market participants by the end of the month. If approved, the new rules are expected to move municipal financing away from a reliance on government grants toward a more market-linked approach.
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