 Hello my dear friends and chana kya is fraternity hope you all are doing well I Krishna Kumar welcome you all to today's topic of discussion and our today's topic of discussion is municipal bonds we are going to cover the topic in depth watch this session very carefully and attentively this is going to be the important as questions can be asked directly from this topic in that civil services exam so let's begin our discussion so first of all we will discuss that what is the background of this discussion okay so urban local bodies across India are floating bonds to raise money why urban local bodies are floating bonds because they are in dire need of the fund they are in dire need of the money so urban local bodies are floating bonds to raise money what actually what happened was that after the implementation of GST which robbed the right of urban local bodies to live by and collect tolls taxes and fees urban local bodies are resorting to the system of floating municipal bonds okay this is why the rising tendency of municipal bonds has been seen among the urban local bodies so in May 2017 the Pune municipal corporation raised rupees 200 crore through bonds which it plans to use to improve water supply infrastructure of the city and after the success of Pune municipal corporation the instances of issuance of municipal bonds has been on rise so after Pune success New Delhi municipal corporation Surat municipal corporation Nasik municipal corporation and now the Badodra municipal corporation plans to float bonds to finance their crumbling civic infrastructure okay so now we will discuss that what is the context of this discussion why are we discussing municipal bonds so very recently Badodra municipal corporation is expected to launch municipal bonds in January and it will become the third urban local body in Gujarat to use this method which method issuance of municipal bonds so it will become the third urban local body in Gujarat to use this method to raise money to fund development work sanctioned under the Amruth mission what is Amruth mission actually Amruth mission is for rejuvenation and urban transformation okay and for this and for the issuance of municipal bonds Badodra municipal corporation has sought approval from the state government so one fact here is that Ahmedabad was the first city in South Asia to launch a municipal bond of rupees 100 crore in 1998 so now we would be dealing with the basics that what a municipal bond is what is a municipal bond what is a municipal bond MB means municipal bond so a municipal bond is a debt instrument issued by municipal corporations or associated bodies in India and the funds raised through these bodies are utilized by the local government bodies to finance socio-economic development projects what are socio-economic development projects like building infrastructure okay what type of infrastructure roads the schools hospitals etc so municipal bonds are issued by the municipal corporations and the funds raised through these bonds are utilized by the these bodies to finance socio-economic development projects very simple and municipal bonds come with a maturity period of three years these have mature maturity period of three years and the urban local bodies pay the annual interest on the bonds to the investor at the pre-decided rate so the rate of the interest would be pre-decided and the bond helps raise fund from the stock market and the bond also increases the number of investors available to the civic body or the local sales government as compared to a loan from a single bank municipal corporations listed so we will have the chances of its investors increase its investors will be more if we give its bond a good rate but what will happen in the bank case if you go to the bank then you can take a single bank free loan at once so this is what it says the bond help raise funds from the stock market and the bond also increases the number of investors available to the civic body as compared to a single bank so why is the government pushing for municipal bonds actually under the amruth mission urban local bodies are encouraged to tap the bond market and these bonds will help ensure improved credit profiles direct transfer of funds transparency and efficient revenue generation so the government will also pay the urban local bodies rupees 13 crore for every rupees 100 crore raised by these bonds so if a urban local body is issuing municipal bond okay of the amount or value rupees 100 crore then the central government will going to pay rupees 13 crore for every 100 crore rupees okay but it is a subject to a ceiling of rupees 26 crore rupees so maximum amount the central government grant karegi mukhetna ho ba 26 crore rupees so what is the working of municipal bonds how these municipal bonds will work okay so first of all bonds would be issued by urban local bodies and then these bonds would be issued for a specified period we have discussed that what would be the period p period of maturity three years okay and after that interest rate would be decided between the parties and after that the same amount would be returned at maturity date this is how the municipal bond is going to but there is a very popular misconception about municipal bonds that notion is that bonds are being issued because a corporation is in a crisis actually it is a very bad misconception and it is also wrong why because the bonds are in integral parts of the amruth mission okay and in fact they can only be floated if the balance sheets are in order and if the credit rating is suitable which indicates that civic body has the capacity to repay the annual amount or to the lender this is the condition over which the municipal bonds would be issued by the local government bodies so what was the need to introduce municipal bonds according to 2011 report by the union ministry of urban development now ministry of housing and urban affairs so 2011 reports shows that improving the country's urban infrastructure requires an investment of rupees 39 lakh crore such a huge amount and very recently in 2017 report of think tank mac n c global this figure is at an astounding rupees 53 lakh crore such a huge amount of investment we need to put so our towns and cities are growing by leaps and bounds providing essential services like drinking water and motorable roads to these ever-expending populations require huge funds and in the absence of adequate funding the central or state government the municipal bond is one of the most potent methods to mobilize money for this purpose so what are the advantages of municipal bonds if we are issuing municipal bonds there must be some advantages so there are some advantages like transparency tax benefits and minimal risk so how it would promote transparency actually these bonds are rated by renowned agencies of india and the world so providing transparency related to the credibility of the investment option and it would also provide tax benefits actually these bonds are exempted from taxation in india and the interest generated on these amount is also exempted and third one is it is at the minimal risk why because these are the government bonds so it these come with minimal risk and what are the disadvantages of municipal bonds actually they have a long maturity period and also low interest rates how they have a long maturity period these bonds have a maturity period of three years we have also discussed it earlier thereby imposing a burden on the liquidity requirements of the investor and the second disadvantage is low interest rates actually these are government bonds and their rates are considerably low when compared to returns from market linked financial instruments such as equity shares bonds debentures etc so now concluding our discussion we can say that the takeoff of the municipal bond market is critical for india's large cities and towns to upgrade their creaking infrastructure okay we need municipal bonds to upgrade our infrastructure facilities in large cities and the ability of municipal bodies to be self-sustaining is also critical to the success of centers pet projects like smart cities mission and atel mission on rejuvenation and urban transformation so covering the discussion in a snap so we will be covering the discussion in a visual actually whenever you need to remember things for the long time just try to visualize the things you can remember it for a long time also in our earlier video on a legal movement we have done this thing in the last of the video so doing the same thing we will be understanding what we have discussed it now through our image so these are municipal bonds what are municipal bonds municipal bonds are tax free investments but and who is going to purchase these invest municipal bonds investor and who would issue these bonds urban local bodies for what purpose these would be issued for public project public projects like roads hospitals bridges schools and stadiums and etc etc so how these bonds will work actually lender will purchase the bond and the amount will be transferred to the borrower and after a maturity date the borrower would provide tax exempt interest to the lender so the face value is returned to the lender and what are the benefits of municipal bonds they have low risk and also tax free so this is the municipal bonds hope you have got the relevant points from the disc from this discussion with this i take your leave we'll meet again with new topic till then keep learning keep growing and enjoy the life thank you very much don't forget to like share and subscribe to our channel and press the bell icon to never miss an update