In a move to boost the municipal bond market, National Bank for Financing Infrastructure and Development (NaBFID) will launch a credit enhancement product in the next four months.
Speaking on the sidelines at FIBAC 2025, managing director Rajkiran Rai G said, “The product will directly address the chronic challenge of low credit ratings among municipal corporations, which have long stifled their access to capital markets. Maybe this quarter, or the next quarter at the most, we will see the product.”
Credit enhancement to improve ratings
The product tailored for municipal bonds is aligned with the recent Reserve Bank of India’s (RBI) guidelines, which is expected to offer partial guarantees or structured support mechanisms that elevate bond ratings, making them more attractive to institutional investors. “We’re working closely with regulators and stakeholders to ensure the product is both scalable and responsive to urban financing needs,” Rai added.
This announcement comes amid NaBFID’s broader push to support up to 500 municipal bodies over the next five years, with targeted financing for sewage treatment and solid waste management. He acknowledged the structural limitations of municipal entities, stemming from weak balance sheets and limited revenue streams, but positioned NaBFID not just as a lender, but as an advisor.
Hybrid borrowing plans in pipeline
NaBFID is also exploring a hybrid borrowing strategy, balancing external commercial borrowings (ECBs) with domestic infra bonds via GIFT City. With up to $1 billion in potential raises, the institution is navigating rising yields and evolving market volatility.
“We’ve already secured sanction limits of Rs 2.4 lakh crore, with disbursements nearing Rs 90,000 crore. As these disbursements scale, our borrowing will follow,” said Rai, adding that the timing and structure of the raise will depend on market conditions. With international ratings now in place, preparations are underway to launch the fundraising initiative within the next month.
The borrowing is likely to be split between ECBs and domestic infra bonds, with Rai confirming that infra bonds remain the institution’s primary vehicle for long-term capital.
Rising bond yields may increase borrowing costs by 10–15 bps for NaBFID, but Rai remains unfazed. “We have factored that in, it translates directly to our lending costs, so our margins remain protected.”