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The Sebi on Thursday asked municipal bodies desirous of raising funds through the issue of municipal bonds to increase transparency in their accounts so that investors would feel encouraged to participate in such securities.

The regulator also added that it would work closely with the ministry of finance to convince other sectoral regulators like IRDAI, EPFO and PFRDA to relax their norms to invest a part of their corpus in municipal bonds.

“Investors look for transparency, clarity, comfort and protection before investing in any securities. The way account keeping is done, many of the municipal bodies still follow single entry system or obsolete accounting practices. They should migrate to the national municipal accounting norms, which is investor friendly and would also ensure that the finances are in very good shape,” said U.K.Sinha, chairman, SEBI and added that a transparent and healthy financial statement would also help municipal bodies to secure high investment grade ratings from credit rating agencies.

According to the government estimates, urban local bodies would require Rs 40 lakh crore over the next 20 years to address the challenges of urbanisation including to develop sewage, sanitation and waste disposal mechanisms among others.

The government study also estimated that an additional Rs 20 lakh crore would be required for the operation and maintenance of these facilities.

Their funding is currently met through grants provided by the Centre and states and borrowing from financial institutions, which is not sufficient enough to fulfil their future needs.

In India, only a handful of urban local bodies have so far raised funds through the issue of municipal bonds. The total amount raised till date stood at Rs 1,750 crore.

This is meagre when compared to $304 billion raised in US in a single year and $1.8 billion raised in South Africa in a single quarter.

Mr Sinha pointed out that the current environment in India is also conducive for the development of a vibrant municipal bond market as consumers are now willing to pay for better services and facilities.

“This was not the case 20 years back. Now people don’t mind paying for better services and facilities provided they are good and the price charged is reasonable. Municipal bodies have an opportunity to monetise such services and improve their balance sheets,” Mr Sinha observed.