Urban local bodies may raise Rs 45,000 crore through municipal bonds in the near term as declining grants from central and state governments will force them to adopt such alternatives, India Ratings said today.
"We believe that the municipal bonds market has the potential to reach a size of Rs 45,000 crore in the near future," an India Ratings report stated.
Municipal bodies are dependent on central grants and their respective state administrations and they would have to look for alternatives since such support would get lesser with time, it stated.
"Municipal bonds may act as an alternative to central and state grants to urban local bodies, whose quantum may come down in the near future," it stated, adding that municipal bonds are crucial to build urban infrastructure.
It stated that rather than standalone local bodies, entities like National Capital Region Planning Board and Mumbai Metropolitan Region Development Authority are better placed to issue such bonds.
These entities could leverage their balance sheet strengths to raise money from capital markets at competitive rates, the India Ratings report said, adding that such entities are better placed than individual municipalities.
Though capital markets regulator SEBI has given its nod to such bonds, which was followed by an announcement by the Municipal Corporation of Greater Mumbai about testing the waters, the India Ratings report said that more needs to be done in this context.
"Some regulations need finetuning or a relook, which can help broaden the municipal bond market," the India Ratings report stated.
