SEBI issued a consultation paper dated 13 May 2026 proposing amendments to the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015, to strengthen the municipal bond framework and align it with developments in the debt market ecosystem. The proposals include mandatory disclosures where municipal debt securities are issued for refinancing existing loans, including details of lenders, interest rates and repayment schedules. SEBI also proposed restricting use of issue proceeds for working capital to 25% of the issue size and requiring project-specific disclosures. The paper suggests a detailed framework for pooled finance vehicles formed by multiple municipalities, including escrow mechanisms, credit enhancements and additional disclosure requirements. Other proposals include specifying face value and trading lot norms, permitting incentives such as additional interest or discounts for certain investor categories, enabling electronic advertisements for public issues, introducing ESG municipal debt securities, and defining “working day” under the regulations. Public comments have been invited until 3 June 2026.
Securities and Exchange Board of India
CONSULTATION PAPER
DEPARTMENT OF DEBT AND HYBRID SECURITIES – POD-1
Consultation paper on Review of the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015
SEBI- May 13, 2026| Reports : Reports for Public Comments
I. Objective and Background:
1. Municipal Corporations constitute a critical part of India’s three-level governance system (viz. Union Government, State Governments, and Local Governments) and play a vital role in infrastructure development and efficient service delivery at the grass roots level. Due to ever-increasing urbanization, Municipal Corporations require a quantum rise in their spending to meet the infrastructure demand.
1. Municipal Corporations having own stable sources of revenues enjoy greater financial autonomy and stability, allowing them to strategically plan and implement urban development projects without relying heavily on grants from the upper government tiers. By augmenting their own source revenues, Municipal Corporations can ensure more stable and sustained revenues, which in turn enables efficacious service delivery and urban infrastructure development and reduces the financial burden on the Central and state governments.
2. SEBI notified the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015 (“ILMDS Regulations”) in July 2015, thereby providing a framework for public issue of municipal debt securities and the listing and trading of such securities.
3. As on March 31, 2026, 22 Municipal Corporations have accessed capital market and raised INR 4540.34 crores through 31 issuances of municipal debt securities.
4. In view of the changes in the debt market ecosystem over the years and the feedback garnered from stakeholders during the interactions with them at outreach programs, it was decided to undertake a review of the ILMDS Regulations. Accordingly, a Working Group (“WG”) was constituted in August, 2024.
5. Pursuant to the recommendations of the WG and deliberations in the Corporate Bonds and Securitization Advisory Committee (CoBoSAC) of SEBI, detailed proposals for changes in the framework governing municipal debt securities are outlined in the ensuing paras of this consultation paper.
II. Re-financing as an objective for raising of funds:
1. Extant Regulatory Provision:
1.1. Currently, there is no specific provision in the ILMDS Regulations for re-financing as an object for raising of funds by municipalities.
2. Need for review:
2.1. While the extant framework does not restrict issuance of municipal debt securities for re-financing of existing loan/ debt, there are no provisions mandating specific disclosures required to be made in the offer document in respect of the same. Accordingly, certain disclosures in respect of the existing lenders and loan(s) that are being refinanced may be included in the offer document or placement memorandum since information on the same may be useful for the investors to assess the issuer’s financial health, and liquidity risk.
3. Proposal:
3.1. In Schedule I of the ILMDS Regulations (in respect of the disclosures to be made in the draft offer document or placement memorandum), under paragraph 5 on “Objects of the Issue”, the following “clause (i)” may be added:
“(i) If the project is re-financed, the following details may be provided in respect of the lenders and existing loan(s) that are being refinanced, as per the specified format:
i. Type of existing loan
ii. Existing lenders
iii. Existing rate of interest
iv. Existing repayment schedule
v. Purpose of existing debt
vi. Past restructuring, if any, on the said project”
| Consultation 1: Re-financing as an objective for raising of funds
Is the proposal mentioned at Para 3 above appropriate and adequate? |
III. Utilisation of issue proceeds towards working capital requirements:
1. Extant Regulatory Provision:
1.1. Regulation 18A of the ILMDS Regulations specifies certain provisions in respect of “Utilization of issue proceeds”.
1.2. However, there are no stipulations in the extant ILMDS Regulations with regard to utilisation of the issue proceeds towards working capital requirements of the project being financed through such issue.
2. Need for review:
2.1. While reviewing the proposal for re-financing as an objective for raising of funds by municipalities, CoBoSAC suggested that certain conditions may be specified with regard to utilisation of issue proceeds towards working capital requirements of the project being financed. The same would ensure that the proceeds of municipal debt securities are deployed efficiently and productively towards capital expenditure on the project, which constitutes the primary purpose for raising of funds.
3. Proposal:
3.1. Under Regulation 18A of the ILMDS Regulations in respect of “Utilization of issue proceeds”, after Regulation 18A (4), the following provisions/ conditions may be inserted:
(5) Not more than 25 per cent the of issue proceeds should be utilised towards working capital requirements of the project being financed.
(6) The issue proceeds should not be used for general purposes and must be specifically linked to the working capital requirements of the underlying projects being financed through such issuances.
(7) The offer document shall contain disclosure with regard to the percentage of issue proceeds proposed to be used towards the working capital component of project being financed.
(8) The above shall be applicable for both original issuance and refinancing.
| Consultation 2 Utilisation of issue proceeds towards working capital requirements
Is the proposal mentioned at Para 3 above appropriate and adequate? |
IV. Raising of funds by two or more municipalities through a Pooled finance vehicle
1. Extant Regulatory Provisions:
1.1. In terms of Regulation (l) of the ILMDS Regulations:
“….. any structure set up under the Pooled Finance Development Fund Scheme of the Government of India or a body corporate to whom the Companies Act, 2013 applies, which offers or proposes to offer municipal debt securities in accordance with these regulations shall also be deemed to be an issuer subject to condition that it is set up by the State Government(s) or Central Government for the purpose of raising funds for a person performing one or more functions entrusted under Article 243W of the Constitution of India.”
2. Need for review:
2.1. While the extant framework provides for an enabling provision for raising of funds by two or more municipalities through a pooled finance vehicle, there are no provisions mandating specific disclosures required to be made in the offer document in respect of the same. Further, certain operational aspects, viz. agreement between the pooled vehicle SPV (“issuer”) and the constituent municipalities and the escrow account mechanism, may also be specified for better clarity regarding the pooled finance arrangement and the repayment mechanism.
3. Proposal:
3.1. Schedule I of the ILMDS Regulations provides the format of disclosures to be made in the offer document and placement memorandum. A separate “Schedule IB” may be inserted, which may be applicable where the issuer is a Special Purpose Vehicle (SPV) set up for pool financing by constituent ULBs.
The proposed draft of Schedule IB, highlighting the proposed modifications in the requirements under Schedule I, is placed at Annexure A.
3.2. The constituent Municipalities shall enter into an agreement with the pooled finance vehicle (SPV) prior to fund raising and may be required to disclose the same in the offer document (as part of Schedule 1B). Further, the SPV may be formed as either a Trust or a Company. Enabling provisions to this effect may be inserted in the main body of the ILMDS Regulations.
3.3. SEBI Circular SEBI/HO/DDHS/CIR/P/134/2019 dated November 13, 2019, inter alia, specifies requirements related to the escrow payment mechanism for issuers of municipal debt securities. Para 4 of said Circular may be modified, to provide for a “two-step escrow account mechanism”, by inserting the following provisions:
“4.1.5. In case the listed entity is a pooled finance vehicle/ Special Purpose Vehicle (SPV) set up under the Pooled Finance Development Fund Scheme of the Government of India, the constituent municipalities are required to create all the above accounts and comply with the requirements specified for the same.
Further, the SPV/ pooled finance vehicle shall maintain an “Interest payment account” and a “Sinking fund account”, to which funds from the respective “Interest payment account” and “Sinking fund account” maintained by the constituent municipalities shall be transferred, as per the agreement between the SPV and the constituent municipalities. The SPV/ pooled finance vehicle shall throughout the tenure of the municipal debt securities maintain an amount equivalent to one year interest obligation in the Interest payment account.
3.4. Multiple forms of credit enhancement could be part of the pooled structure to provide greater protection to investors. These may include:
i. Additional cash collateral
ii. Program equity by the state government
iii. Access to state finance commission devolutions to ULBs
iv. Full or partial credit guarantee from a high rated development finance institution (DFI) or multilateral institution
3.5. The SPV shall obtain credit rating from a SEBI-registered Credit Rating Agency (CRA). The CRA shall, while rating the bond issued by the SPV, undertake a credit rating assessment of each constituent municipality in the pool.
| Consultation 3: Raising of funds by two or more municipalities through a Pooled finance vehicle
Are the proposals mentioned at Para 3 above appropriate and adequate? |
V. Alignment with certain provisions/ requirements under SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”)
1. Extant Regulatory Provisions:
1.1. The extant ILMDS Regulations do not contain following provisions/ incentives/ relaxations, which are specified in NCS Regulations:
i. Requirements related to face value/ trading lot/ denomination for municipal debt securities
ii. Permitting issuers to offer incentives in the form of additional interest or a discount to the issue price to certain categories of investors
iii. Permitting electronic modes for making advertisements for public issues
iv. Framework for issuance of “Environment, Social and Governance (ESG) debt securities” by municipalities
v. Definition of “working day”
2. Need for review:
2.1. In order to encourage retail participation in municipal debt securities, there is a need to specify similar framework, as provided under the NCS Regulations, and also to provide greater clarity for municipal debt securities issued under ILMDS Regulations.
3. Proposal:
3.1. Requirements related to face value/ trading lot for municipal debt securities:
3.1.1. Currently Regulation 22 of the ILMDS Regulations provides as under:
“The face value of municipal debt securities shall be disclosed in offer document or placement memorandum in the manner as specified by the Board.”
3.1.2. However, the ILMDS Regulations currently do not specify any amount with regard to the face value or trading lot for municipal debt securities.
3.1.3. In case of non-convertible securities issued under NCS Regulations, Chapter V of the “Master Circular for issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated October 15, 2025” (“NCS Master Circular”) (placed at Annexure B), inter alia, specifies requirements related to the face value of debt securities issued on private placement basis.
3.1.4. It is proposed to specify similar requirement in respect of face value and trading lot for municipal debt securities, by inserting the following para under “Chapter V – Denomination of issuance and trading of Non-convertible Securities” of the NCS Master Circular:
“3. Issuance and trading of municipal debt securities:
3.1 The face value of each municipal debt security issued on private placement basis shall be Rs. One Lakh or Rs. Ten Thousand, as deemed fit.
3.2 The municipal debt security issued at a face value of Rs. Ten Thousand shall have a fixed maturity and be without any structured obligations.
3.3 The trading lot of the listed municipal debt security issued on private placement basis, traded on a Stock Exchange, shall always be equal to the face value of such security.”
3.1.5. The extant Para 3 of Chapter V of the NCS Master Circular may be modified as under (insertions underlined, deletion in strikethrough):
“3. 4. This chapter is not applicable for debt securities, municipal debt securities and non-convertible redeemable preference shares issued on a public issue basis.”
3.1.6. Accordingly, Chapter V may also make reference to Regulation 22 of the ILMDS Regulations and the heading of Chapter V may also mention “municipal debt securities”.
| Consultation 4: Requirements related to face value/ trading lot/ denomination for municipal debt securities
Are the above proposals appropriate and adequate? |
3.2. Permitting issuers to offer incentives in the form of additional interest or a discount to the issue price to certain categories of investors:
3.2.1. Currently, Regulation 22B of the ILMDS Regulations specifies the following in respect of payment of incentives:
“Prohibition on payment of incentives
22B. Any person connected with the issue shall not offer any incentive, whether direct or indirect, in any manner, whether in cash or kind or services or otherwise to any person for making an application in the issue, except for fees or commission for services rendered in relation to the issue.”
3.2.2. In order to encourage participation of certain categories of investors in debt securities, thereby providing a fillip to the number of public issuances in the debt market, the NCS Regulations were amended in January, 2026, to permit issuers to offer an incentive in the form of additional interest or a discount to the issue price to certain categories of investors, viz. senior citizens, women, serving and retired defence personnel, widows and widowers of defence personnel and retail individual investors.
3.2.3. Accordingly, similar incentive may also be considered for municipal debt securities to encourage participation of retail investors by inserting the following proviso in Regulation 22B of the ILMDS Regulations:
“Provided that nothing contained in this regulation shall preclude the issuer from offering an incentive in the form of additional interest or a discount to the issue price to senior citizens, women, serving and retired defence personnel, widows and widowers of defence personnel, retail individual investors or any other category of investors as may be specified by the Board from time to time:
Provided further that such incentive shall be available only to the initial allottee but not in case the municipal debt securities are transferred/ transmitted post allotment.”
| Consultation 5: Permitting issuers to offer incentives in the form of additional interest or a discount to the issue price to certain categories of investors
Is the above proposal appropriate and adequate? |
3.3. Permitting electronic modes for making advertisements for public issues
3.3.1. Regulation 9(1) of the ILMDS Regulations specifies that “The issuer may make an advertisement in a national daily with wide circulation…”.
3.3.2. Under NCS Regulations, issuers are permitted to make advertisement through electronic modes such as online newspapers or website of the issuer or the stock exchange. Accordingly, Regulation 9(1) of the ILMDS Regulations may be amended to provide as under (insertions underlined):
“The issuer shall make an advertisement through electronic modes such as online newspapers or website of the issuer or the stock exchange, or in a national daily with wide circulation, on or before the issue opening date and such advertisement shall, amongst other things, contain the disclosures as per Schedule IV.
Provided that issuers opting to advertise the public issue through electronic modes shall publish a notice in a national daily and regional daily newspaper with wide circulation, exhibiting a QR Code and link to the complete advertisement.”
| Consultation 6: Permitting electronic modes for making advertisements for public issues
Is the above proposal appropriate and adequate? |
3.4. Framework for issuance of “Environment, Social and Governance (ESG) debt securities” by municipalities:
3.4.1. In the recent years, several municipal corporations have issued green municipal debt securities, in terms of the framework provided under the NCS Regulations. NCS Regulations also provide the operational framework, inter-alia, covering initial and post issue disclosure by the issuer and appointment of an independent third party reviewer for issuance of other “ESG debt securities”, viz. social bonds, sustainability bonds and sustainability-linked bonds.
3.4.2. It is proposed that the framework for issuance of ESG debt securities, as provided under the NCS Regulations, may also be enabled under the ILMDS Regulations to facilitate the issuance of such securities by municipalities. Accordingly, the following enabling provision may be inserted as Regulation 4F. in the ILMDS Regulations:
“Issuance of Environment, Social and Governance Debt Securities
An issuer desirous of issuing and listing of Environment, Social and Governance Debt Securities shall comply with the conditions as may be specified for such securities under SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 and circulars issued thereunder.”
| Consultation 7: Framework for issuance of “Environment, Social and Governance (ESG) debt securities” by municipalities
Is the above proposal appropriate and adequate? |
3.5. Definition of “working day”:
3.5.1. The following provisions under ILMDS Regulations specify timelines in terms of “working days”:
“Period of subscription
8. (1) Except as otherwise provided in these regulations, public issue of municipal debt securities shall be kept open for at least three working days.
(2) The issuer may extend the bidding period disclosed in the offer document, in case of force majeure, banking strike or similar circumstances, for a minimum period of three working days.”
3.5.2. However, the ILMDS Regulations do not specify the definition of “working day”. Therefore, the following definition of “working day”, as specified under the NCS Regulations, may also be inserted in ILMDS Regulations to provide greater clarity in respect of timelines specified in the ILMDS Regulations:
““working day” means all days on which commercial banks in the city, as specified in the offer document, are open for business;
Explanation:
For the purpose of this definition, in respect of –
(i) Announcement of bid /issue period:
working day shall mean all days, excluding Saturdays, Sundays and public holidays, on which commercial banks in the city as notified in the offer document are open for business;
(ii) the time period between the bid/ issue closing date and the listing of the non-convertible securities on the stock exchanges: working day shall mean all trading days of the stock exchanges for non-convertible securities, excluding Saturdays, Sundays and bank holidays, as specified by the Board; “
| Consultation 8: Definition of “working day
Is the above proposal appropriate and adequate? |
IV. Public Comments
1. Considering the implications of the aforementioned matters on the market participants, public comments are invited on the above-detailed proposals. The comments/ suggestions should be submitted through the following mode latest by June 03, 2026, through the online web-based form at the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?do PublicComments=yes
2. The instructions to submit comments on the consultation paper are as under:
| 1. Before initiating the process, please read the instructions given on top left of the web form as “Instructions”.
2. Select the consultation paper you want to comment upon from the dropdown under the tab – “Consultation Paper” after entering the requisite information in the form. 3. All fields in the form are mandatory; 4. Email Id and phone number cannot be used more than once for providing comments on a particular consultation paper. 5. If you represent any organization other than the types mentioned under dropdown in “Organization Type”, please select “Others” and mention the type, which suits you best. Similarly, if you do not represent any organization, you may select “Others” and mention “Not Applicable” in the text box. 6. There will be a dropdown of Proposals in the form. Please select the proposals one- by-one and for each of the proposal, please record your level of agreement with the selected proposal. Please note that submission of agreement level is mandatory. 7. If you want to provide your comments for the selected proposal, please select “Yes” from the dropdown under “Do you want to comment on the proposal” and use the text boxes provided for the same. 8. After recording your response to the proposal, click on “Submit” button. System will save your response to the selected proposal and prompt you to record your response for the next proposal. Please follow this procedure for all the proposals given in the dropdown. 9. If you do not want to react on any proposal, please select that proposal from the dropdown and click on “Skip this proposal” and move to the next proposal. 10. After recording your response to all the proposals, you may see your draft response to all of proposals by clicking on “Check your response before submitting” just before submitting response to the last proposal in the dropdown. A pdf copy of the response can also be downloaded from the link given in right bottom of the web page. 11. The final comments shall be submitted only after recording your response on all of the proposals in the consultation paper |
3.5.3. In case of any technical issue in submitting your comment through web based public comments form, you may contact the following through email with a subject: “Issue in submitting comments on Consultation Paper on Consultation paper on Review of SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 “.
1. Rohit Dubey, GM (rohitd@sebi.gov.in)
2. Nishtha Tewari, AGM (nishthat@sebi.gov.in)
3. Kartan Shivaraj, AGM (kartans@sebi.gov.in)
Issued on: May 13, 2026
