Nod for pacts by Exim Bank under BRICS mechanism

Exim Bank can now enter into bilateral agreement for co-financing with large developmental institutionsto ensure lending in single currency. This follows a decision by the Union Cabinet giving its approval to the signing of the Interbank Local Currency Credit Line Agreement and Cooperation Memorandum Relating to Credit Ratings by Exim Bank with participating member banks under BRICS Interbank Cooperation Mechanism.

The move follows expiry of an initial Master Agreement in March. The agreement was on extending credit facility in local currency under the BRICS Interbank Cooperation Mechanism.

It is understood that some of the member banks (like CDB and VEB; CDB and BNDES) have entered into bilateral agreements for local currency financing under the Master Agreement signed in 2012. Although the current conditions are not conducive to usage, it was useful to keep the same alive as an enabling feature in case a suitable opportunity materialises in future.

As both the agreement and the MoU are umbrella pacts, and are non-binding in nature, the Board of Directors of Exim Bank have been authorised to negotiate and conclude any individual contracts and commitments within their framework, it added. The agreements will promote multilateral interaction within the area of mutual interest which will deepen political and economic relations with BRICS nations.

Signing of the agreement will position Exim Bank in the international platform along with large development finance institutions, like CDS, VEB and BNDES.

According to an official release, at an appropriate time, Exim Bank, leveraging this umbrella agreement, could enter into bilateral agreement with any of these member institutions to raise resources for its business. As and when an opportunity arises for co-financing in commercial terms, by any two member institutions (say India and South Africa), lending in single currency by both the institutions would also be possible.

Exim Bank finances, facilitates and promotes India's international trade. It provides competitive finance at various stages of the business cycle covering import of technology, export product development, export production and export credit at pre-shipment and post-shipment stages and investments overseas.

It would enable sharing of credit ratings amongst the BRICS member banks, based on the request received from another bank. This would be an ideal mechanism to mitigate the credit risks associated with cross-border financing. In future, such a mechanism could also serve as pre-cursor to the proposal of having an alternate rating agency by BRICS nations.

The agreement and the MoU have also been highlighted in the BRICS Leaders Xiamen Declaration made in Xiamen, China on September 4.

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