Inter-bank Local Currency Credit Line Agreement and Cooperation Memorandum relating to Credit Ratings

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The Union Cabinet has given its approval to the signing of the (i) Interbank Local Currency Credit Line Agreement and (ii) Cooperation Memorandum Relating to Credit Ratings by Exim Bank with participating member banks under BRICS Interbank Cooperation Mechanism.

  • As both the Agreement and the MoU are umbrella pacts, and are non-binding in nature, the Board of Directors of Exim Bank has been authorized to negotiate and conclude any individual contracts and commitments within their framework.

Impact

  • 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.
  • 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.

Background

  • 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.

Interbank Local Currency Credit Line Agreement

  • It is a framework mechanism to extend credit lines in local currencies to the BRICS’ Interbank Cooperation Mechanism (ICM) members.
  • The initial Master Agreement on Extending Credit Facility in Local Currency under BRICS ICM had validity of five years and expired in March 2017.
  • Under it some member banks of BRICS had entered into bilateral agreements for local currency financing under Master Agreement signed in 2012.

Cooperation Memorandum Relating to Credit Ratings

  • It enables sharing of credit ratings amongst BRICS member banks, based on request received from another bank.
  • It serves as ideal mechanism to mitigate credit risks associated with cross-border financing.
  • It can also serve as pre-cursor to proposal of having an alternate rating agency by BRICS nations.

Source:PIB