SEBI Proposes Allowing Municipal Bodies to Raise Funds Jointly

The Securities and Exchange Board of India on Tuesday proposed a new pooled municipal financing framework that would allow multiple urban local bodies to jointly raise funds through special purpose vehicles, as part of a broader overhaul aimed at deepening India’s municipal bond market.

The regulator has released a consultation paper suggesting that such SPVs be required to maintain funds equivalent to one year’s interest obligations during the tenure of the bonds.

Only 22 municipal corporations had accessed debt capital markets as of March 31, 2026, raising about ₹45.4 billion through 31 issuances, highlighting the limited scale of municipal financing through bonds despite growing urban infrastructure requirements, SEBI said.

To strengthen investor confidence, the regulator has also proposed allowing multiple credit enhancement mechanisms, including state government equity support, guarantees from development finance institutions and multilateral agencies, and additional cash collateral structures.

The regulator has also proposed to lower the threshold for face value of such bonds to ₹10,000 from ₹100,000 to improve retail participation. Municipal issuers may offer incentives such as additional interest or discounted issue prices for retail investors, senior citizens, women and defence personnel, it said.

Other major proposals include:

• Municipal bodies may formally use bond proceeds for refinancing existing debt, subject to detailed disclosures on past borrowings, repayment schedules and restructuring history.
• Use of bond proceeds for working capital would be capped at 25%, while general-purpose utilisation would not be permitted.
• Municipalities may also issue green bonds, social bonds and sustainability-linked bonds under existing ESG frameworks applicable to non-convertible securities.
• SEBI has additionally proposed allowing digital advertisements for municipal bond issues through online newspapers, stock exchange platforms and issuer websites.

The regulator has also proposed tighter disclosure requirements covering municipal revenues, property tax collections, debt servicing ratios, litigation, escrow arrangements and reform implementation metrics.

The consultation paper remains open for public comments till June 3, 2026.

The proposals come amid the Centre’s continued push to expand urban infrastructure financing through schemes such as AMRUT and recent Union Budget measures encouraging municipal bond issuances.

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