KOCHI: Following the state budget proposal to allow local bodies to raise funds by issuing bonds, Kochi corporation is planning to take that route to bankroll its infrastructure development. The civic body, which had even earlier considered issuing municipal bonds, aims to take steps to complete the procedure in the coming months.
The budget recommended the formulation of a detailed proposal to allow urban local bodies to raise an amount of Rs 1,000 crore through municipal bonds. The funds can be used to implement projects like IT parks, commercial centres, roads, waste management, and water-supply schemes.
A municipal bond is a debt security a local body can issue to raise funds for public projects. The person who purchases a municipal bond is lending money to the local body over a period of time in return for interest payments.
Many local bodies in the country have raised funds through municipal bonds, including Ahmedabad, Bengaluru, Indore, Lucknow, and Vadodara. Bengaluru Municipal Corporation was the first local body in India to issue municipal bonds in 1997.
Top officials said Kochi corporation needs to improve its credit rating before taking necessary steps to issue bonds.
“Before proceeding with the proposal, we need to update the financial accounts,” said mayor M Anilkumar. “There are several proceedings to be completed before we move to issue the bonds. The finance should be examined and errors rectified,” he told TNIE.
The mayor said funds raised through the bonds can be used for infrastructure development, besides projects like canal rejuvenation. “The amount can be employed for investment purposes as well,” said Anilkumar.
Former mayor K J Sohan said the implementation of the proposal is in question. “Before proceeding with the proposal, the corporation needs to improve its credit rating. The errors in its finances and accounts must also be corrected,” he said.
Anilkumar said the earlier move to issue municipal bonds did not work as there was no sanction from the state government. “The council and the people’s representatives had earlier discussed the possibilities of issuing muni-bonds with consulting firms. However, without the approval of the state government we could not operationalise the plan,” he said, adding that the urban commission had submitted a report to the state government suggesting the formulation of a proposal to raise funds through municipal bonds.
What are municipal bonds?
Municipal bonds, or munis, are debt securities that local governments issue. They are a way for investors to lend money to the government in exchange for interest payments.
Which cities have raised munis?
Ahmedabad, Bengaluru, Indore, Lucknow, and Vadodara.
Which city tapped munis first?
Bengaluru in 1997.
What’s the tenure of munis?
Municipal bonds can have a maturity period of 1 to 30 years. The length of time an investor holds the bond is called its tenure.
What’s the interest rate on munis?
Interest rates on municipal bonds in India can range from 7% to 9% annually. However, the exact rate depends on several factors, including the bond’s maturity period, the issuing municipality’s credit rating, and prevailing interest rates.