New Development Bank (NDB) is the first Multi-lateral Development Bank established by developing countries and emerging economies – Brazil, Russia, India, China and South Africa (BRICS) – in accordance with the agreement on New Development Bank signed on 15th July, 2014 in Fortaleza, Brazil. The NDB members represent 42 percent of world population, 27 percent of the global surface area and accounting for over 20% of the Global GDP (Figure 1).
Figure 1: NDB members represent 42 percent of world population, 27% of the surface area and account for over 20 percent of global GDP.
The NDB was established aiming to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions for global growth and development. The five member nations – Brazil, Russia, India, China and South Africa – have an equal shareholding in the NDB (Figure 2).
Figure 2: Shareholding Structure of New Development Bank
The NDB has an initial authorized capital of USD 100 billion and initial subscribed capital of USD 50 billion of which USD 10 billion will be paid-in capital (Figure 3). The initial subscribed capital is equally distributed amongst the founding members.
Figure 3: Capital of New Development Bank
The NDB intends to be fast, flexible and efficient, without sacrificing quality. The Bank strives for having a short loan-processing time, aiming to design, negotiate, review and approve loans within a period of 6 months. Insofar as procurement policies and environmental and social standards are concerned, the NDB will, whenever possible, rely on country systems.
The NDB received an “AAA” institutional rating from China Chengxin Credit Rating and China Lianhe Credit Rating and commenced engagement with international rating agencies. In July 2016, the NDB issued its debut a green financial bond in the China onshore interbank bond market. The size of the issue is RMB 3 billion (USD 449 million). The bond has a five-year term and nominal interest rate of 3.07%.
The NDB is building-up partnerships with multilateral and national development banks, which will allow it to tap into the expertise of established development institutions, strengthen its capacity to assess and implement projects as well as assist the Bank in increasing capillarity of its operations. The NDB has signed Memoranda of Understanding with World Bank and Asian Development Bank as well as leading commercial banks from the NDB member states.
Projects in India
During the first year of work, the Board of Directors of the NDB approved a wide range of operational, financial and HR policies that took into account good practices adopted by other multilateral and national development institutions.
In 2016, the NDB Board of Directors has approved seven projects, of which two are in India, for a total of over USD 1.5 billion, in the areas of renewable and green energy, and transportation. All projects are coherent with the Bank’s mandate of supporting infrastructure projects, with more than 75% of projects dedicated to sustainable infrastructure, mainly renewable energy generation.
The seven approved projects will support the creation of about 1500 MW of Renewable Energy capacity and are estimated to result in the reduction of greenhouse gas emissions by over 4 million tons per year.
The two projects in India target up-gradation of major district roads in Madhya Pradesh and Renewable Energy generation. The Madhya Pradesh Roads project will provide US$ 350 million sovereign loan to the Government of India for upgrading approximately 1500 km of major District roads in the State. The project would result in reconstruction and rehabilitation of 1,500 km of roads with focus on all-weather road availability and improved road maintenance and asset management. The project fosters inclusive economic growth through increased incomes as a result of improved connectivity and access to markets for interior regions of the state. The signing of the loan agreement for this project is likely to happen soon. The loan will be provided for 20 years with a grace period of 5 years.
The Second Project financed by the New Development Bank (NDB) in India will lead to generation of about 500 MW Renewable Energy thereby preventing generation of 815,000 tonne CO2 per annum. USD 250 million sovereign guaranteed loans will be given to Canara Bank in three tranches under this project.
The Second Annual Meeting of the Board of Governors of NDB is now scheduled to be held in Delhi from 31stMarch to 2nd April, 2017 in which both Finance Minister & Vice Finance Minister of China, Vice Finance Minister of Russia, Secretary of International Affairs, Ministry of Finance of Brazil and DDG, Ministry of Finance of South Africa have confirmed their participation among others. During the three day Annual Meeting of Board of Governors, many Memorandum of Understanding (MOUs) with Multi-lateral Development Banks will also be signed among others.
*Author is Additional Director General (M&C) posted at PIB, New Delhi.