Vadodara becomes the second city to successfully issue municipal bonds with assistance from US Treasury

Tags: Economy/Finance

Vadodara city of Gujarat became the second city in India to successfully issue its municipal bonds with the assistance of the US Treasury Department’s Office of Technical Assistance. 

Earlier Pune was the first city in India to issue Municipal bonds in 2017 with the assistance of US Treasury Department’s Office of Technical Assistance, Finance Ministry in the United States of America is known as Treasury department.

The successful issuance of the bond was celebrated by the US Embassy and the US Treasury officials, the Union Ministry of Housing and Urban Development, Vadodara city and the Securities and Exchange Board of India (SEBI) on 3 November 2022.

The Rs 100 crore fund raised by the bond will be used for infrastructure development in Vadodara.

What is a Municipal Bond?

 Municipal Bonds also known as Muni bonds. It is a debt instrument which is issued by Urban Local Bodies in India. The fund is used to develop Infrastructure developments in the municipal areas.

The first Municipal bonds were issued in 1997 by the Bangalore Municipal Corporation.

SEBI guidelines on Municipal bonds 

The municipality which meets the following criteria can issue municipal bonds:

• The municipality must not have a negative net worth in each of the three previous years.
• The municipality must have no default history in repayment of loans to financial institutions in the last year.
• The municipality, promoter and directors must not be enlisted in the wilful defaulters published by the Reserve Bank of India (RBI). 
• The municipality should have no record of default in the payment of interest and repayment of principal with respect to debt instruments.

Other features of the Bond 

The time period of the bonds shall be 3 years.

The bonds must be rated by Credit Rating agencies with a rating above investment grade.