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Vadodara Municipal Corporation (VMC) to launch municipal bonds in January 2021

  • IASbaba
  • December 25, 2020
  • 0
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Vadodara Municipal Corporation (VMC) to launch municipal bonds in January 2021

Part of: GS Prelims and GS-III – Economy

In news 

  • The Vadodara Municipal Corporation (VMC) is expected to launch municipal bonds in January 2021.

Key takeaways 

  • With this, it will become the third Urban Local Body (ULB) in Gujarat to use this method to raise money to fund development work sanctioned under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). 
  • It has sought approval for the same from the state government.
  • Ahmedabad was the first city in south Asia to launch a municipal bond of Rs 100 crore in 1998. 
  • Surat Municipal Corporation was the second city in Gujarat to announce bonds in 2018.

Important value additions 

Municipal bond

  • A municipal bond is a kind of debt instrument where investors offer loans to local governments.
  • They are issued by civic bodies for specific projects and usually have a 10-year tenure.
  • The ULB pays the annual interest on the bonds to the investor at the decided rate. 
  • The difference between a bank loan and a municipal bond is that any institution can secure a bond only if it has favourable credit ratings.
  • Benefits: The bond helps raise funds from the stock market. It also increases the number of investors available to the civic body, as compared to a loan from a single bank.

Do you know? 

  • Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, urban local bodies (ULBs) are encouraged to tap the bond market.
  • Bonds help ensure improved credit profiles, direct transfer of funds by the Centre, transparency and efficient revenue generation.

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