 "Madhabi Puri Buch")
Sebi chairperson Madhabi Puri Buch
The Securities and Exchange Board of India (Sebi) plans to facilitate the settlement and clearing of municipal (muni) bonds through AMC Repo Clearing (ARCL) to encourage greater participation and increase volumes.
Although the muni bond market is yet to take off in a big way, the market regulator sees an opportunity for broader participation and fundraising.
“We believe the total value of real estate investment trusts, infrastructure investment trusts, and the muni bonds ecosystem can be another one-time gross domestic product. That is the growth opportunity available,” said Madhabi Puri Buch, chairperson of Sebi, at a conference organised with the National Institute of Securities Markets last week.
While advocating for smaller units for retail participants in these products, Buch also highlighted that India’s inclusion in global bond indices would boost interest in corporate debt.
However, to facilitate muni bonds on ARCL, several regulatory changes are required from the Reserve Bank of India (RBI) and the central government regarding eligible holders and borrowers of these bonds to participate in the repo market through ARCL.
ARCL is a settlement and clearing provider for the tri-party repo, backed by Sebi and funded by asset management companies, launched last year to provide a common platform for market participants.
The platform, launched last year, has started witnessing significant turnover with over Rs 10,500 crore volumes recorded in February.
“Muni bonds are not eligible for repo in line with the RBI directive. Local authorities can be made eligible for it subject to a notification by the central government,” said a person familiar with the developments.
“Further, certain holders will have to be made eligible to participate through this route. For example, foreign portfolio investors are not allowed to participate in ARCL. Further, high networth individuals who usually buy these muni bonds are also not eligible. These changes will be required to be addressed first,” he added.
On the other hand, mutual funds, which are allowed on the ARCL, are not eligible to buy muni bonds. Municipal corporations have raised a total of Rs 2,584 crore since 2017 through these bonds. These include bonds issued by municipal corporations of cities like Ahmedabad, Bhopal, Indore, Pune, Lucknow, and Greater Hyderabad, among a few others.
These funds are used for infrastructure projects within the city.
Muni bonds were traditionally privately placed. However, last year, Indore Municipal Corporation marked the first public issue where retail investors could participate, raising Rs 244 crore from the issue.
The National Stock Exchange Nifty India Municipal Bond Index, which includes a total of 28 such bonds, had an average yield of 8.7 per cent as of February 2024.
First Published: Mar 18 2024 | 7:48 PM IST