SEBI clears municipal bonds

The Securities and Exchange Board of India (SEBI) recently announced a slew of measures including listing of municipal bonds and setting up of a global financial hub within India on the lines of Singapore and Dubai.

Why?

To deepen markets and help raise funds for business and infrastructure projects.

Details:

  • SEBI has made it easier for banks to acquire control in distressed listed companies, by converting their debt into equity.
  • SEBI has tightened the noose on entities indulging in market manipulation and insider trading by selective leak of information at the cost of investors.
  • It has announced a road map for the new fiscal, beginning next month, with regard to new norms to help young entrepreneurs raise funds through listing of start-ups and crowd-sourcing, while it would streamline and strengthen its enforcement process for better efficiency.
  • Proposing a new avatar by adopting latest technologies, the SEBI has said it would tap social media in a big way to reach out to the investors and make it easier for them through measures like e-IPO and Aadharbased e-KYC initiatives.

About Municipal Bonds:

  • A municipal bond is a bond issued by a local government, or their agencies.
  • ‘Muni bonds’ are very popular among investors in many developed nations, especially in the U.S., where these have attracted investments totalling over $500 billion and are among preferred avenues for household savings.
  • The Bangalore Municipal Corporation was the first municipal corporation to issue a municipal bond of Rs.125 crore with a State guarantee in 1997. However, the access to capital market commenced in January 1998, when the Ahmedabad Municipal Corporation (AMC) issued the first municipal bonds in the country without State government guarantee for financing infrastructure projects in the city. AMC raised Rs.100 crore through its public issue.
  • Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal authorities have issued such bonds
  • As per guidelines of the Urban Development Ministry, only bonds carrying interest rate up to maximum 8% per annum shall be eligible for being notified as tax-free bonds.
  • There is massive capital investment need in municipal infrastructure and funds from programmes such as Jawaharlal Nehru National Urban Renewal Mission (JNNURM) can only partly meet the requirement.
  • Therefore, to meet their financing needs, the municipalities have to seek recourse to other means including issuance of municipal bonds.

Sources: The Hindu, Wiki.

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