SEBI (India's stock market regulator) has suggested several important updates to the rules around municipal bonds these are loans that city corporations raise from the public by issuing debt papers to fund infrastructure and civic projects. The key proposals include: 

1. requiring cities that want to refinance (replace old loans with new ones) to fully disclose their existing loan details so investors can judge financial health; 
2. capping working capital use (day-to-day operational expenses) at 25% of funds raised, ensuring most money goes toward actual projects; 
3. enabling pooled financing, where multiple smaller cities can jointly raise funds through a shared vehicle (trust or company) backed by a two-tier escrow (a protected account where funds are held safely) system, with credit agencies rating each city individually; 
4. aligning muni bond rules with broader non-convertible securities norms (standard corporate debt rules); 
5. allowing issuers to offer extra interest or discounts to retail investors, women, senior citizens, and defence personnel to attract wider participation; 
6. permitting ESG bonds (loans tied to environment, social, or governance goals); and
7. allowing digital advertising for bond issues. 

The consultation paper follows a review of the 2015 municipal debt regulations amid changes in the debt market ecosystem — as of March 2026, 22 municipal corporations had collectively raised Rs. 4,540.34 crore through 31 issuances.
 

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