The Reserve Bank of India’s (RBI) latest master circular allows municipal debt securities as eligible collateral in repo transactions.Effectively, this would allow banks to now borrow or lend money using municipal bonds as collateral and potentially increase demand for municipal bonds and lower the cost of borrowing for state-led infrastructure projects funded by local governments.On October 28, the Finance Ministry issued a notification to the same effect.
Municipal bonds in India are debt securities issued by urban local bodies (ULBs) to fund public projects like infrastructure and smart city initiatives. Investors lend money to the municipality and receive interest payments in return.These bonds are regulated by the Securities and Exchange Board of India (SEBI) and can be bought on stock exchanges.”Moreover, municipal bonds have failed to perform satisfactorily under the smart city mission due to financial constraints of urban local bodies and overreliance on government grants. Despite significant responsibilities, municipal corporations’ revenue receipts are quite modest (0.6% of GDP in FY24) and pale in comparison to those of Central and State governments (9.2% and 14.6% of GDP in FY24, respectively),” an SBI report said in April 2025.Read more: India releases discussion paper on compilation of new series of IIP; invites comments till Nov 25DFS Secy Nagaraju: Require new bank licences for Viksit Bharat; NBFCs, SFBs could become universal banks(Edited by : Sriram Iyer)First Published: Nov 11, 2025 8:52 PM IST
Source link
