How Modi government plans to boost municipal bond issuance

**How the Modi Government Plans to Boost Municipal Bond Issuance**
*By Dwaipayan Roy | Sep 21, 2025, 06:47 PM*

The Indian government is considering increasing the interest subvention cap beyond the existing limit of ₹26 crore per Urban Local Body (ULB) to promote the issuance of municipal bonds for urban infrastructure development. This initiative is part of the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme.

### Slow Progress Despite Key Initiatives

Despite flagship programs like AMRUT and the Smart Cities Mission, progress in mobilizing funds through municipal bonds—often called ‘muni bonds’—has been slower than expected. To address this, the government aims to enhance incentives and institutional support to encourage more ULBs to access the capital markets.

### Understanding the Interest Subvention

The interest subvention is a financial incentive provided under AMRUT to make municipal bonds more attractive to issuers and investors. Currently, the maximum interest subvention available to a ULB from the Ministry of Housing and Urban Affairs (MoHUA) is capped at ₹26 crore.

To stimulate market participation, the central government offers a 2% interest subvention on bond issuances by ULBs.

### Incentive Structure for Bond Issuance

– **First Bond Issuance:**
ULBs can receive incentives up to ₹13 crore for every ₹100 crore raised, with an overall cap of ₹26 crore under AMRUT 2.0.

– **Subsequent Issuances:**
Bonds issued must be classified as green bonds, focusing on sectors such as water, sanitation, renewable energy, or urban resilience.
In such cases, ULBs are eligible for incentives of ₹10 crore per ₹100 crore raised, subject to a cap of ₹20 crore.

### Institutional Support from NaBFID

The National Bank for Financing Infrastructure and Development (NaBFID) is set to play a crucial role in supporting ULBs throughout the bond issuance process. The bank may empanel agencies including merchant bankers, brokers, and rating agencies to provide expert guidance.

As a development finance institution, NaBFID will assist municipal bodies with statutory paperwork and ensure compliance with the Securities and Exchange Board of India (SEBI) listing requirements — simplifying access to capital markets for infrastructure projects.

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By expanding financial incentives and offering institutional support, the Modi government seeks to unlock the potential of municipal bonds as a vital tool for urban infrastructure development, enabling cities to better meet the growing needs of their populations.
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