Civic bodies likely to hit Bond Street to raise up to Rs 1,000 crore

A large number of municipal corporations including Vadodara, Chennai, Kolkata, Prayagraj, Agra, Kanpur and Varanasi are seeking to raise a total of around ₹1,000 crore through bond issuance, likely in the current and upcoming quarters of the fiscal year.

“Vadodara is looking at ₹100-150 crore, while Chennai is looking at around ₹300 crore. Kolkata could issue bonds of around ₹300-350 crore while UP-based municipal corporations together would be looking at around ₹200 crore,” a source familiar with the development said.

“Generally, these bonds are five-year bonds and the funds are used to develop projects related to water, sewer, among other municipal activities. The main activity in this space will take place during the second and third quarters,” the source said.

In the coming days, another municipal body – the Pimpri Chinchwad Municipal Corporation – is set 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 bond issues by civic bodies are part of a push by the Reserve Bank of India (RBI) for civic bodies to explore alternative avenues of funding.

“As the demand for infrastructure increases in Indian cities, MCs (municipal corporations) need to further explore ways to invigorate and foster the mobilization of alternative and sustainable resources through municipal bonds,” the RBI wrote in a November 2022 report.

The central bank mentioned that nine municipal corporations raised ₹3,840 crore between 2017 and 2021, though issuances fell after 2018.

For investors, the appeal of municipal bonds stems from the fact that bonds issued by civic organizations offer higher yields than government securities of similar maturity, even though municipal bonds are considered relatively low-risk instruments.

“One of the spaces that is likely to emerge is crowdfunding, because as things stand, it’s not easy for smaller municipalities to raise funds through bonds,” a source said.

Pooled finance refers to a process of issuing a common bond by pooling the resources of several local bodies.