The Brihanmumbai Municipal Corporation (BMC) has now formally initiated the process of raising funds from the capital markets through municipal bonds. As part of the process, the civic body has appointed a Securities and Exchange Board of India (SEBI)-approved agency to analyse its credit rating.
This is the first time in its 133-year history that the BMC, touted as the richest civic body in the nation, will be tapping the capital markets to raise funds. The move comes at a time when the civic body has recorded mounting liabilities tied to multiple infrastructure projects, with a total cost of Rs 2.13 lakh crore, more than four times its capital expenditure.
What is a municipal bond?
A municipal bond is a debt investment issued by a government-run civic body to fund a public infrastructure project. The bonds are listed in the capital market regulated by the SEBI. Once the bonds are listed, financial institutions and individuals can buy them, which usually means they lend money to the local civic body.
In return, the issuer of the bonds (BMC) will pay them interest on the principal amount within a given period of time. Some municipal corporations that have used municipal bonds to fund key civic infrastructure projects include the Pune Municipal Corporation, Pimpri Chinchwad Municipal Corporation, Indore Municipal Corporation, and Ahmedabad Municipal Corporation, among others.
Why is the BMC now raising funds through capital markets?
Even though BMC is not in a financial deficit yet, its records show that its reserves have dropped by Rs 10,000 over the past 5 years. According to the BMC budget, the reserves for the 2026-27 financial year are estimated at Rs 81,449 crore. In comparison, the reserves in 2021 were Rs 91,690 crore. Between the financial years 2014-15 and 2021-22, the BMC’s reserves grew significantly, rising from Rs 43,285 crore to Rs 91,690 crore, the highest level ever recorded.
However, out of the total reserve of Rs 81,449 crore, the BMC can only use 45 per cent or 36,623 crore for its infrastructure work, since the remaining 55 per cent or Rs 44,826 crore is tied up for committed liabilities, including provident fund for its employees, pension and gratuity fund and bank deposits taken from contractors.
BMC municipal bond initiative (Graphics generated using AI).
Meanwhile, the overall size of all the infrastructure projects stands at Rs 2.13 lakh crore, six times the BMC’s usable reserves.
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The dip in revenue has been caused by a substantial portion of these funds being allocated to multiple infrastructure projects. The BMC in the past five years has mooted several infrastructure projects, including the coastal road, the Goregaon Mulund Link Road (GMLR), the wastewater treatment facility (WWTF) project, which includes construction of seven sewage treatment plants (STPs), and the mega road concretising project.
Of these projects, the highest allocation of Rs 33,000 crore has been earmarked for the coastal road project that will connect Versova in Mumbai’s western suburbs to Bhayander in the Mumbai Metropolitan Region (MMR). This is followed by Rs 29,900 crore for the STP project and Rs 17,733 crore for BMC’s mega road concretisation project, a brainchild of Maharashtra Deputy Chief Minister Eknath Shinde.
Therefore, to ensure these projects remain fully funded and don’t stall due to the crisis, the BMC has now tapped capital markets to raise funds. The BMC will use funds raised through bonds exclusively to finance these projects, while also exploring alternative measures to build its own financial reserves.
Which projects will be funded by BMC using these funds?
According to civic sources, the BMC aims to raise capital of between Rs 5,000 and Rs 10,000 crore through municipal bonds; the scale will be further augmented after analysing responses and the BMC’s revenue generation.
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Officials said that the funds generated through the bonds will be used for funding key water supply projects, which include the Rs 33,000 crore WWTF project, the Rs 14,000 crore desalination plant, the Rs 6,000 crore Gargai Pinjal Dam project and the construction of major water supply conveyance tunnels amounting to a total cost of Rs 17,000 crore.
The BMC’s water supply project department has received substantial monetary allocations in the 2026-27 budget this year, and the Bhartiya Janata Party (BJP) and Shiv Sena-led Mahayuti alliance in the BMC also stated that boosting the civic body’s water supply network will be the key focus in the next five years.
BMC municipal bond initiative (Graphics generated using AI).