New Norms Proposed for Municipal Bonds

The market regulator Securities and Exchange Board of India (SEBI) has proposed a new set of norms for listing and trading of municipal bonds on stock exchanges and to channel household investments into urban infrastructure development.

Norms Proposed

A municipal bond popularly known as a Muni Bond is a bond issued by a local government or one of their agencies to finance developmental projects. The new norms proposed by SEBI are:

  • The minimum subscription amount for municipal bonds on a private placement basis has been proposed to be reduced to Rs 10 lakh from the current Rs 25 lakh in a bid to align it with corporate bonds.
  • Urban development bodies and other agencies which carry out functions similar to the municipality are not defined as municipalities under the constitution. This makes them ineligible to raise funds through issue of debt securities under the Issue and Listing of Debt Securities by Municipalities regulations. Hence SEBI has proposed to widen the scope of the issuer to include any statutory body or authority, trust or agency established under an Act of Parliament or an Act of the State Legislature or any SPVs notified by the state government or central government.
  • SEBI has also proposed to include any structure set up by the state government under the Pooled Finance Development Fund scheme of the central government is proposed under scope of issuer subject to the condition that these entities perform one or more functions listed in twelfth schedule of constitution which includes town planning, urban poverty alleviation and other various functions.
  • SEBI has also proposed changes in auditing and financial statement disclosure requirement of municipalities.

The new norms are part of the efforts to enhance the financing pool of the local and urban development bodies to five a fillip to the Smart City initiative.