India’s ambitious municipal bond market faces a substantial hurdle: the precarious financial health of its urban local bodies. This was the stark assessment from Securities and Exchange Board of India (SEBI) Chairperson Tuhin Kanta Pandey at the Annual Infrastructure Conclave of the National Bank for Financing Infrastructure and Development (NaBFID) in Mumbai.
Mr. Pandey underscored the vital role municipal bonds play in urban development, providing a crucial avenue for cities to raise long-term capital for essential services like water supply, sanitation, transportation, and waste management. However, he pointed out that many municipalities struggle with ‘project readiness’ and ‘credibility,’ citing weak balance sheets and delays in obtaining necessary clearances as major deterrents to bond issuance.
Despite these challenges, Mr. Pandey stressed the immense, yet largely untapped, potential of India’s municipal bond market. He urged for targeted measures to bolster the capital market, making it a more attractive landscape for both institutional and retail investors interested in municipal and green bonds.
During the conclave, the SEBI chief also advocated for an accelerated asset monetization plan across various sectors. He called for a concentrated effort to unlock value in infrastructure segments such as roads, railways, ports, airports, energy, petroleum & gas, and logistics. He noted that most state governments are yet to fully develop concrete asset monetization strategies, which could provide a significant boost to infrastructure creation.
Furthermore, Mr. Pandey highlighted Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) as a burgeoning and highly promising asset class. He described these trusts as critical instruments for channeling long-term capital into the nation’s infrastructure and real estate sectors.
In a move to further empower these investment vehicles, SEBI recently reclassified REITs as equities. This change is expected to enhance their eligibility for inclusion in market indices, thereby encouraging broader participation and greater investment in these essential infrastructure financing tools.