Sebi mulls norms for issuance, listing of muni bonds

To help channelise household savings and provide a new investment avenue, market regulator Securities and Exchange Board of India (Sebi) will soon come out with a new set of norms to enable issuance and listing of municipal bonds - a popular financial product in developed countries.

Under the proposed framework, currently under consideration of Sebi, municipal bonds would be debt securities issued by states, cities and other government entities which will use the money for infrastructure developments such as buildings, schools, highways, hospitals, sewage systems and other projects for the public good. An internal Sebi panel, the Corporate Bonds and Securities Advisory Committee (CoBoSAC) had constituted a sub-committee to specify the disclosure and other requirements for issuance and listing of municipal bonds.

The sub-committee has given its report to the CoBoSAC, whose recommendations would form the basis to draft norms for the way ahead of these bonds and the final guidelines would be put in place after going through a public consultation process on the draft norms, a senior official said.

Commonly known as muni bonds, these investment products are very popular among investors in many developed nations, especially the United States, where it has attracted investments totalling $500 billion and are among preferred avenues for household savings.

These bonds can be issued by urban local bodies to finance infrastructure such as water supply and sanitation.

They serve as an efficient tool for local bodies to mop up funds and can be extensively tapped to meet funding needs of urbanisation, while providing a new investment avenue to the public and institutional investors.

The market for muni bonds has not yet taken off in India even though few municipalities here have offered such products in the past, while Ahmedabad Municipal Corporation in Gujarat was the first to launch such a bond, in 1998.

While there is already an existing framework for issuance of muni bonds, including by the ministry of urban development, there are no unified norms to bolster this nascent market.

The fresh push for muni bonds has come at a time when the regulators and the government are looking at ways to channelise household savings into the market to boost overall economic growth.

India's savings rate stood at little over 30 per cent of the gross domestic product (GDP) in the financial year 2012-13, while household savings rate was nearly 22 per cent during the same period.

In India, muni bonds were issued for the first time by a municipality in Gujarat, the home state of Prime Minister Narendra Modi.

In 1998, Ahmedabad Municipal Corporation had become the first municipality to come out with muni bonds. Since then few others, including Greater Vishakhapatnam Municipal Corporation, had issued such bonds.

India would need more than Rs 800 billion investments to cater to the urban infrastructure needs over two decades, according to the industry chamber Assocham, and muni bonds can serve as an effective fund-raising instrument in this regard.

Besides the US, other countries with a developed muni bond market include Canada and Russia.