SEBI asks Popularise municipal bonds
U.K. Sinha, chairman of Securities and
Exchange Board of India (Sebi), has urged the country’s municipal bodies to
improve their accounting standards and suggested that other financial
regulators allow regulated entities to invest in municipal bonds.
- He has asked the Municipal bodies to move to a standard accounting practice. This will not only attract better credit rating but also demand from more investors.
- The chairman has also asked stakeholders to engage with other financial regulators such as IRDAI (insurance regulator), PFRDA (pension regulator) and EPFO (employee provident fund organization).
- The Sebi chief also said he would be taking up this matter with the government so that municipalities can better tap the capital markets to part meet their capex bills, which according to some studies will be to the tune of Rs 40 trillion over the next two decades.
Background:
According to government statistics, a
cumulative amount of Rs.1,750 crore has been raised through municipal bonds in
India while South Africa saw $1.8 billion being raised through such bonds in a
single quarter alone. Incidentally, $304 billion was raised in the U.S. through
municipal bonds in just one single year.
About Municipal Bonds:
A municipal bond is a bond issued by a local
government, or their agencies.
- ‘Muni bonds’ are very popular among investors in many developed nations, especially in the U.S., where these have attracted investments totalling over $500 billion and are among preferred avenues for household savings.
- The Bangalore Municipal Corporation was the first municipal corporation to issue a municipal bond of Rs.125 crore with a State guarantee in 1997. However, the access to capital market commenced in January 1998, when the Ahmedabad Municipal Corporation (AMC) issued the first municipal bonds in the country without State government guarantee for financing infrastructure projects in the city. AMC raised Rs.100 crore through its public issue.
- Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal authorities have issued such bonds
- As per guidelines of the Urban Development Ministry, only bonds carrying interest rate up to maximum 8% per annum shall be eligible for being notified as tax-free bonds.
