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