PMC to raise another Rs 200 crore through municipal bonds

Central government’s two per cent grant for bonds of more than Rs 200 crore, ensures benefit to civic body

Updated on: Feb 08, 2020 4:20 PM IST

Hindustan Times, Pune | By Anonymous

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The Pune Municipal Corporation (PMC) is planning to go to the share market later this year to once again raise Rs 200 crore through municipal bonds for executing the 24x7 water scheme.

PMC’s chief account officer Ulka Kalaskar said, “PMC raised Rs 200 crore in June 2017 through municipal bonds which was appreciated by the central and state governments. Of that amount, the PMC has already utilised Rs 140 crore and by March 2020, the balance Rs 60 crore would get spent. The PMC will again go to the share market for raising additional Rs 200 crore for executing the 24x7 water project.”

In June, 2017, Pune Municipal Corporation had raised Rs 200 crore through municipal bonds at an interest of 7.59 per cent to finance its 24x7 water supply project. The plan was to raise Rs 2,264 crore in five years in what was then the biggest municipal bonds programme in the country.

Kalaskar said that along with Pune, a total of eight local bodies had taken the benefit of the municipal bonds in the country. He said since the central government is promoting municipal bonds, the PMC received two percent subsidy in the interest and received Rs 26 crore as a grant. The central government has now decided to give two percent grant only for bonds of more than Rs 200 crore. “Therefore, PMC will definitely go for such a scheme to get the benefit from the central government,” he said.

In 2017, although the PMC raised Rs 200 crore through municipal bonds, the implementation of the scheme was delayed due to the cancellation of the tendering process on suspicion of a tender cartel. The civic body was then forced to park the entire amount in fixed deposits for almost two years. The implementation of the scheme began in 2019 and the amount was utilitized as per requirement.

Municipal commissioner Shekhar Gaikwad said, “Municipal bonds are a good instrument for municipal corporations as civic bodies get competitive interest rates for their projects as compare to traditional debt from banks.”

What are Municipal bonds

Municipal bonds are debt instruments by which a municipal corporation raises money from individuals or institutions and promise to pay a specified amount of interest and returns the principal amount on a specific maturity date.

Municipal bonds were first issued in India in 1997, five years after the 74th Constitutional amendment decentralized urban local bodies and gave them autonomy; made them accountable to citizens, and reformed their finances enabling them to access capital markets and financial institutions.

Bengaluru Municipal Corporation was the first to introduce the municipal bonds, followed by Ahmedabad civic body in 1998

Money Matters

Municipal bonds are issued by urban local bodies to raise funds for projects, specifically those that are infrastructure related. These bonds can be public issue or private issue

-Rs 200 crore raised by PMC in June 2017 by selling 10-year bonds. The funds were meant for the ambitious 24x7 water supply project. Since the project delayed, the amount was kept as a fixed deposit

-Rs 140 crore was utilised by PMC

-Rs 60 crore will be utilised by March 2020

-Rs 200 crore more to be raised by the end of 2020

In Numbers

-7.59 % interest offered on the bonds

- 2 % subsidy in the interest

-Rs 26 crore given by the centre to the PMC as a special aid to encourage other civic bodies to opt for municipal bonds

As per ministry of housing and urban development, the following cities have raised funds through municipal bonds

Pune - Rs 200 crore

Indore - Rs 139.90 crore

Hyderabad -Rs 200 crore

Bhopal -Rs 175 crore