Infrastructure financing can be achieved through asset monetisation, according to SEBI Chairman's statement.
The Securities and Exchange Board of India (SEBI) Chairman, Tuhin Kanta Pandey, has highlighted the need to address issues such as limited secondary market liquidity and expand investor participation to scale up municipal bond efforts in India.
Pandey emphasised the importance of asset monetization in addressing India's infrastructure financing challenges, particularly in sectors like roads, ports, railways, airports, energy, petroleum, and logistics. He also stressed the importance of municipal bonds in funding city-level infrastructure projects.
Globally, municipal bonds are a cornerstone of urban financing. However, in India, they are still in the early stages. Over the last five years, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have mobilized over ₹1.5 lakh crore and managed assets worth ₹8.7 lakh crore by FY25. While these instruments have made significant strides in channeling long-term capital into infrastructure, their scale is still insufficient for India's infrastructure funding needs.
The current investor base for municipal bonds is narrow, with institutional investors dominating, and retail and foreign investors remaining hesitant. Limited secondary market liquidity is a challenge in the municipal bond market that needs to be addressed. Improving transparency in the municipal bond market could significantly boost its potential as a reliable funding source.
Expanding investor participation is essential for scaling up municipal bond efforts. Pandey highlighted the need to encourage regular issuance to attract a wider investor base. Since 2017, 21 municipal bond issuances have taken place in cities like Ahmedabad, Chennai, Varanasi, and Rajkot, raising approximately ₹3,134 crore.
REITs and InvITs offer developers the ability to recycle capital by monetizing operational assets, while investors gain steady, yield-generating portfolios. More needs to be done to scale REITs and InvITs to meet India's infrastructure demands.
The demand for water, sanitation, and transport infrastructure in urban areas is rising, and the current number of municipal bond issuances is modest. Addressing issues such as limited secondary market liquidity and expanding investor participation will be crucial to scaling up municipal bond efforts.
In conclusion, while municipal bonds have potential as a reliable funding source for urban infrastructure in India, there are challenges that need to be addressed. Improving transparency, encouraging regular issuance, and expanding investor participation could significantly boost the potential of municipal bonds. The SEBI Chairman's emphasis on asset monetization and the importance of municipal bonds in funding city-level infrastructure projects underscores the need for action in this area.
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