**How Modi Government Plans to Boost Municipal Bond Issuance**
*By Dwaipayan Roy | Sep 21, 2025, 6:47 PM*
The Indian government is considering increasing the interest subvention cap beyond the current limit of ₹26 crore per urban local body (ULB) to encourage the issuance of municipal bonds for urban infrastructure development. This initiative falls under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), aimed at revitalizing urban areas.
Despite proactive schemes like AMRUT and the Smart Cities Mission, the progress in mobilizing funds through municipal bonds has remained slow. To address this, the government is looking to make “muni bonds” more attractive to civic bodies by enhancing financial incentives.
### What Is Interest Subvention?
Interest subvention is a financial incentive provided to municipal bodies under AMRUT, which helps reduce the borrowing costs when issuing municipal bonds. Currently, the Ministry of Housing and Urban Affairs (MoHUA) offers a 2% interest subvention with a cap of ₹26 crore per ULB.
To incentivize wider participation and stimulate the municipal bond market, the government plans to raise this cap, encouraging more urban local bodies to explore bond issuance as a viable funding option.
### Incentives for Bond Issuance
– **First-Time Issuance:** For their inaugural municipal bond, ULBs can avail incentives up to ₹13 crore for every ₹100 crore raised, with a maximum cap of ₹26 crore under AMRUT 2.0.
– **Subsequent Issuances:** Bonds issued after the first must be categorized as green bonds, focusing on key sectors such as water, sanitation, renewable energy, or urban resilience. For these, ULBs are eligible for incentives of ₹10 crore per ₹100 crore raised, capped at ₹20 crore.
These measures aim to promote sustainable urban development by encouraging green financing avenues through municipal bonds.
### Institutional Support: Role of NaBFID
To support ULBs in developing and issuing municipal bonds, the National Bank for Financing Infrastructure and Development (NaBFID) is set to play a pivotal role. NaBFID plans to empanel various agencies including merchant bankers, brokers, and rating agencies to provide expertise and technical assistance to municipal corporations.
As a development finance institution, NaBFID will also help ULBs with statutory paperwork and ensure compliance with Securities and Exchange Board of India (SEBI) listing requirements, smoothing the path for bond issuance.
### Conclusion
While various central and state initiatives have been launched to enhance municipal infrastructure funding via capital markets, results have been modest so far. By increasing interest subvention limits and providing institutional support through NaBFID, the Modi government aims to revitalize municipal bond issuance, fueling urban development in India’s growing cities.
https://www.newsbytesapp.com/news/business/municipal-bonds-goi-considers-raising-interest-subvention-cap-for-ulbs/story
