Securities and Exchange Board of India (Sebi) Chairman UK Sinha on Thursday asked the municipal bodies to adopt modern accounting practices and improve their credit ratings in order to raise capital from the capital market through bond issues.
“One feedback is on account keeping of municipal bodies…it is high time we move away from the obsolete accounting system which municipalities follow, and need to adopt latest modern investor-friendly accounting norms,” Sinha said while speaking at a conference on municipal bonds in Mumbai.
Sinha said Sebi is trying to sensitise people in municipal offices across the country on the benefits on the need for improved credit ratings.
Sebi notified the new norms for listing and trading of municipal bonds on stock exchanges in July 2015 to help the smart cities programme launched by the Narendra Modi government. The municipal bonds will allow authorities to mop up funds for setting up smart cities by raising money from public and institutional investors.
Sinha said that the interest rate of 8 per cent on municipal bonds could be made more attractive by offering more flexibility in interest rates.
“There is ceiling of 8 per cent…some flexibility can be brought in this such as linking it with 10 year government security yields,” he said.
According to the Union Urban Development Secretary, Rajiv Gauba, there are at least 500 cities which need to get a rating within the next 18 months to be able to sell municipal bonds.
“Municipal bonds have tremendous potential but till now it has been used only sparingly,” Gauba said. He added that only Rs 1,750 crore has been raised through this route so far, compared to over USD 300 billion raised in the US in one year alone.
Later at the sidelines of the event Sinha told reporters that Sebi is planning to ease out regulations for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), this month. “We are likely to take a call in our board meeting this month. I am very optimistic that REITs and InvITs will take off this year,” said Sinha.
In 2014, Sebi came out with the regulations on REITs and InvITs but not a single trust has been set up since then.