Mumbai: With an aim to help municipalities raise capital from markets, Securities and Exchange Board of India (Sebi) Chairman U K Sinha on Thursday said these local bodies need to do away with old accounting practices and adopt new mechanism to improve their credit ratings.
He also said Sebi will look into any issues and suggestions concerning credit rating municipal bonds.
"One feedback is on account keeping…it is high time we move away from the obsolete accounting system, which municipalities follow, and need to adopt latest modern investor friendly accounting norms," Mr Sinha said at a conference on municipal bonds here.
He said if they (local bodies) don't have the right accounting practice, it will affect their ratings and they will not be able to issue bonds.
"Sebi is trying to sensitise people on the issue. If credit rating improves they would be able to raise funds," Mr Sinha said.
He further noted that an interest rate of eight per cent on municipal bonds could be made more attractive by offering more flexibility in interest rates.
"There is ceiling of 8 per cent…some flexibility can be brought in this such as linking it with 10 year government security yields," he said.
Noting that unlike in the USA, India is lucky to have regulated credit rating agencies and norms well laid out, Mr Sinha said Sebi will be more than happy to look into any issues related to rating of municipal bonds.
He said the norms for municipal bonds provide clear cut guidelines and hopes such bonds will get listed.
"Sebi has tried to focus on disclosures clarity of process and safeguards for investors have been laid out under these norms," Mr Sinha added.
To help the government's 'Smart Cities' programme, the capital markets watchdog notified new norms for listing and trading of municipal bonds on stock exchanges in July last year.
The municipal bonds would allow authorities to mop up funds, including for setting up smart cities, by raising money from the public and institutional investors.