Civic Bodies To Raise ₹10k Cr From Green Municipal Bond Issues Till FY30: Report

Civic bodies in India are likely to raise ₹10,000 crore through the green municipal bonds route over the next 30 months, a report said on Monday.

Pegging the required urban infrastructure investments at over ₹56 lakh crore during FY27-30, domestic rating agency Icra said up to ₹3 lakh crore of this amount will be raised from commercial debt financing route, which highlights the role of municipal and green bonds.

The unavailability of projects, which can qualify for green finance, is "unlikely to be primary constraint" on the development of the green municipal bond market, it said, pointing out that water supply, sewerage and wastewater treatment, solid waste management, renewable energy and climate-resilient infrastructure qualify.

Around a fourth of the ₹6,540 crore raised through the municipal bonds route qualify as green municipal bonds while another fourth have the potential to be treated as green, it said.

"We estimate a base-case green municipal bond issuance potential of ₹10,000 crore over FY2027-FY2030, with further upside as issuer readiness improves," it said.

Stating that supply-side constraints are a key challenge for the development of this instrument, it said municipalities with adequate credit quality, proper financial disclosures, repayment visibility, project preparation and transaction readiness will be the ones who can access the capital market in a sustainable manner.

"...market-access filters will materially reduce the investible issuer universe despite the broader infrastructure requirement," it pointed out.

Recent issues have shown a readiness among investors to subscribe to such green bond issuances, it said, adding that recent green bond subscriptions have witnessed a 5-times over-subscription.

Moreover, the green bond issuances have continued to offer a visible yield premium of up to 1.90% over the sovereign and up to 1.55% over the state benchmarks, it added.

"These trends indicate that investor appetite for municipal green finance is developing, while supply-side constraints remain a more significant impediment for market expansion than capital availability," it said.

The rating agency acknowledged that policy support and market development initiatives are "gradually addressing" the supply-side barriers.