The government has asked the public sector banks to lend more to municipal corporations to build Urban infrastructure. The banks have responded in an affirmative. They plan to double the financial support to the corporations. The government feels that with rapid urbanisation, the Urban infrastructure will come into pressure.

In 2006, IDBI, IL&FS, IIFCL and Canara bank had decided to initiate a framework of debt financing known as Pooled Municipal Debt Obligation (PMDO) facility. According to the plan, these four lenders were supposed to be the key sponsors to lend to Urban municipal. Each one of them had promised to lend up to 250 crore. These banks had also received commitments from 11 other banks stating that they would lend around Rs 2000 crore. As per the framework, the banks had agreed to provide loan for tenure of 10 years with a base rate of 9.5 percent to facilitate channelising debt funds for urban infrastructure.

A lender present at a meeting said, "Earlier all lenders had agreed to commit about Rs 3,000 crore for three years. In a recent meeting between banks and senior officials from the finance ministry, it has been decided that banks will double their commitment for PMDO.

The banks have so far lent Rs. 800 crore to assist around 30 projects. The banks have also held meetings to review these loans so that they can take appropriate steps to increase assistance to the corporations.

IL&FS Urban Infrastructure Asset Managers is looking after the loans and administration work of Urban infrastructure projects funded by this facility. The PMDO has been funding various infrastructure projects that include water supply and sewage, solid waste management and urban transport and environmental projects.

Banks said that out of 5000 municipal corporations operating in the country, a very few have come forward to avail loans. The municipal corporations of Ahmedabad and Nasik have been awarded the highest rating of AA-, while those of Nagpur, Vadodara, Kolkata and Rajkot have been given a rating of A by Crisil.