“Vadodara aims to raise ₹100-150 crore, while Chennai is targeting around ₹300 crore. Kolkata is expected to issue bonds worth ₹300-350 crore, while the municipal corporations in Uttar Pradesh together are looking at around ₹200 crore,” stated a source familiar with the matter.
“Typically, these bonds have a maturity period of five years and the funds are utilized for various municipal activities related to water, sewage, and other development projects. The major bond issuances are expected to occur in the second and third quarters,” added the source.
In the near future, the Pimpri Chinchwad Municipal Corporation is also planning to conduct a five-year bond sale of up to ₹200 crore, marking the first debt sale by a civic body in the current financial year.
The issuance of bonds by municipal bodies coincides with the Reserve Bank of India’s (RBI) push for civic bodies to explore alternative financing methods.
“As the demand for infrastructure grows in Indian cities, municipal corporations must explore ways to mobilize alternative and sustainable resources through municipal bonds,” stated the RBI in a November 2022 report.
The central bank highlighted that nine municipal corporations had raised ₹3,840 crore during the period of 2017-2021, with issuances decreasing after 2018. The government provides financial incentives in the form of a lump-sum grant-in-aid for municipal bond issuances through the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) Programme at a rate of Rs 13 crore per Rs 100 crore of bonds issued.
For investors, municipal bonds are attractive due to their higher returns compared to government securities of similar maturity, while still being considered relatively low-risk instruments.
“One area that is expected to gain momentum is pooled finance, as smaller municipalities find it challenging to raise funds through individual bond issuances,” stated a source.
Pooled finance refers to the process of issuing a common bond by pooling the resources of multiple local bodies.