Cities Flood Market: Municipal Bond Issuance Hits Record High
Overview
India's municipal bond market achieved a record with nine issuances by December in the current financial year, surpassing previous years. Fiscal support via AMRUT 2.0, offering quantified incentives, and strong demand from domestic institutional investors seeking long-term yields are driving this surge. New municipal bodies are accessing capital markets, signaling improved issuer preparedness and a viable funding alternative.
Municipal Bond Market Surges to Record Levels
India's municipal bond market is experiencing unprecedented growth, with nine issuances recorded by December of the current financial year. This figure significantly surpasses the three issuances in the previous year and just one the year before. The total value of outstanding municipal bonds reached ₹3,783.9 crore as of September 30, 2025, with ₹1,000 crore issued within calendar year 2025 alone.
AMRUT 2.0 Fuels Issuance Boom
Market participants attribute this robust performance largely to fiscal support provided under the Atal Mission for Rejuvenation and Urban Transformation 2.0 (AMRUT 2.0). The scheme offers quantified incentives that directly reduce borrowing costs for urban local bodies (ULBs). First-time issuers can receive incentives up to ₹13 crore per ₹100 crore issued, making bond issuance a more attractive funding option. Repeat issuers benefit from incentives linked to green bonds, aligning with environmental, social, and governance (ESG) objectives.
Investor Demand Bolsters Market
Surplus liquidity among domestic institutional investors, coupled with a preference for long-term, predictable cash flows, has created a strong demand for municipal bonds rated AA and above. This environment allows municipalities to secure long-term funding at competitive rates, avoiding the refinancing risks often associated with bank loans. Issuers are now strategically timing their issuances to favorable market conditions.
Improved Issuer Preparedness
Several municipal corporations have made strides in strengthening their accounting systems, audit practices, and revenue stream ring-fencing, such as property and water taxes. This enhanced preparedness enables these ULBs to meet SEBI's disclosure, escrow, and monitoring requirements, thereby reducing execution risks and shortening issuance timelines. Even smaller and mid-sized cities are accessing markets through pooled structures, further expanding the pipeline of potential issuers.
