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India’s National Bank for Financing Infrastructure and Development or NaBFID plans to unveil a credit facility for local municipal corporations that seek to produce energy using waste, according to people familiar with the matter.
The effort by the state-owned infrastructure lender will include three tools to ease borrowing by municipalities for such projects, including a credit enhancement program that was announced Saturday as part of the country’s budget. The other two include an option for local authorities to take direct rupee loans from the bank, and a choice for them to sell bonds directly to the bank, said the people, who asked not to be identified because the information is private.
READ: India Unveils Credit Enhancement System for Infrastructure Bonds
Most urban capital spending in India is funded through government grants and the municipalities’ own revenue, according to a report by local rating company CareEdge Ratings. Such spending is projected to total 3.5 trillion rupees ($40.2 billion) for financial years 2021-2026.
Officials have been advocating for tools like municipal bonds as an alternative to help bridge a massive financing gap for India’s infrastructure needs. But uptake has been slow and India’s municipal bond market is still nascent — over the last eight years municipalities have raised about 27.8 billion rupees of municipal bonds through multiple issues, according to data from the Securities and Exchange Board of India.
NaBFID didn’t immediately reply to Bloomberg’s email seeking comment.
Details such as the targets for potential issue size will be decided based on initial feedback from prospective borrowers, the people said. The credit product could be launched in a workshop that will be held on Feb. 6 alongside multiple municipal corporations and consultants, they added.
The credit enhancement tool, in the form of a partial guarantee, would aim to help raise the creditworthiness of issuers through an agreement by the bank to partially repay creditors in the event of default. Exact details on how much loss might be absorbed are still being discussed, the people said.