BackSmart city push: Sebi chairman urges for vibrant municipal bond market
Sebi chairman U.K. Sinha wants civic bodies to implement a standard accounting practice to not only attract better credit rating, but also demand from more investors
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Mumbai: U.K. Sinha, chairman of Securities and Exchange Board of India (Sebi), urged the country’s municipal bodies to improve their accounting standards and suggested that other financial regulators allow regulated entities to invest in municipal bonds.
“Municipalities cannot follow obsolete accounting standards anymore. There is a serious lack of trust among investors with regards to the accounting standards followed by municipal bodies," Sinha told a conference on municipal bonds organized by Sebi on Thursday.
“Municipal bodies must move to a standard accounting practice. This will not only attract better credit rating but also demand from more investors."
Sinha said there is a need for participation by more categories of investors in municipal bonds in order to develop the market.
“Stakeholders should engage with other financial regulators such as IRDAI (insurance regulator), PFRDA (pension regulator) and EPFO (employee provident fund organization) and ask them to allow entities such as insurance firms to invest in municipal bonds. These are typically long-term players and their participation will help in building a vibrant municipal bond market. Electronic issuance of bonds has been allowed by Sebi. And if other regulators allow participation of their regulated entities it will surely develop the market," Sinha said.
There are about 500 cities which need to get a rating within the next 18 months to be able to sell municipal bonds, Rajiv Gauba, secretary at the urban development ministry, said on the sidelines of the conference.
Additionally, smart cities too need money, which can be raised on the bond trading platform through municipal bonds.
Sinha also pointed to the need for flexibility in the interest rates offered by bonds to be eligible to get a tax-free status. At present, a bond offering more than 8% cannot get a tax-free status. “I endorse the fact that there is a need to have some flexibility in the 8% rate so that municipal bonds get more demand. Maybe the rates can be aligned to the G-Sec rates," Sinha said.
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