Rating agency Crisil expects Rs 6,000 crore of municipal bonds to be issued over the next three fiscals from progressive and proactive urban local bodies (ULBs) riding on policy and regulatory facilitation.
Ashwini Bhatia, chief operating officer, SBI Caps, told DNA Money, "As affordable housing picks up, municipalities could be raising funds for housing too expanding the market further. These bonds will help in governance and transparency improving grass root participation bringing discipline to state finance. We have got mandates from some well-rated cities."
In June, the Pune Municipal Corporation (PMC) made news for being the first civic body in 14 years to raise about Rs 2,300 crore through municipal bonds to modernise the water supply system in and around Pune.
The issue managed by SBI Caps was very competitively priced. The pricing for the 10-year bond was at 7.59% higher than a government bond of similar maturity which was traded at 6.64%
According to Crisil, a total of 94 municipal corporations had been rated till May. Of these 94 rated municipal corporations, 10 are rated AA or above. About 14 are rated in the A category, while the rest are rated BBB or below.
"While the amount may seem small in the context of India's massive infrastructure needs, it is nearly 4 times what was raised - Rs 1,550 crore - in the past 20 years. There were no issuances between fiscals 2011 and 2017," Crisil said in a release.
"More such issuances are in the offing," said Subodh Rai, senior director, Crisil Ratings. "That's because bonds offer ULBs structuring flexibility through longer tenures, annual interest payments, and fixed coupon rates compared with bank loans. Further, the capital market also has a large investor base, and can turn out to be more competitive than bank borrowing."
The government's move to develop civic infrastructure across the country through the AMRUT1 and SMART City missions requires significant capital spending by ULBs. Crisil estimates ULBs will have to borrow Rs 15,000 crore to fund these projects through fiscal 2023.
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