Municipal Bonds See Strong Growth Since FY2018 Due to Government Incentives: ICRA Report | Current Affairs | Vision IAS
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Municipal Bonds See Strong Growth Since FY2018 Due to Government Incentives: ICRA Report

Posted 21 Mar 2025

1 min read

According to the report, over ₹2,600 crore has been raised through municipal bonds since FY2018, up from ₹1,000 crore during FY1998-FY2005

Image showing factors driving Municipal Bonds.
  • For FY2025-FY2026, municipal bond issuances are projected to exceed ₹1,500 crore. 

About Municipal Bonds

  • A municipal bond is a debt instrument issued by municipal corporations with the permission of respective state governments.
    • Bengaluru floated municipal bonds for first time in India in 1997 followed by Ahmedabad MC in 1998.
  • They help Urban Local Bodies achieve financial autonomy by reducing reliance on state and central funding.

Persistent challenges in Municipal Bonds issuances in India

  • Grant Dependency: ULBs rely on state grants for ~38% of revenue (RBI report).
  • Accounting Issues: No standardized norms, causing inconsistencies.
  • Low Liquidity: No secondary market, reducing investor interest.
  • High Compliance Costs and weak credit profile limit market access. 

To strengthen the municipal bond market, issuing tax-free bonds can attract retail investors, while green bonds can draw international funding. Offering higher yields under new RBI norms may encourage commercial banks to participate.

  • Tags :
  • SEBI
  • Green Bond
  • Municipal Bonds
  • Finance of Local Bodies
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