New Development Bank-Its Indian projects

Taken from our blog,”Brink of economic thoughts”

New Development Bank-Its Indian projects

 

New Development bank was in news last week as of the approved projects in Indian state of Madhya Pradesh for infrastructure projects, to be exact about the district road up gradation projects. Just recently  New Development bank ,{which is a collective step of BRICS nation and has headquarters at Shanghai,China}and Government of India signed an agreement of loan provision for financing road up gradation worth 350 US $ in Indian state of Madhya Pradesh. This is going to be the first such project which is going to be financed by this new BRICS initiated financial institution in India. It holds very much significance for a nation like India since; we are also one among the founding members of the financial institution. Among the concerns which are raised about some form of competition among the NDB and various older institution existing like World Bank, IMF, or even upcoming institutions. This is a great development-centric declaration and move. Since its start various bodies have shown willingness to work with BRICS conceptualized bank. Obvious reasons indicate a fact that a population which is significant on planet cannot be neglected which is one among the fastest developing population Bloc.

This was one among the objectives of the formation of this new BRICS bank which was established in July 2014 .It had been one among the brainchild of BRICS leadership .It had been largely felt to have a need to a new financial group which could look after the capital needs of the BRICS nation and also generate the funds for infrastructure related projects.

 

Main objectives of the New development bank can be categorically summarized as to promote socially and environmentally sustainable projects ,{like way of issuance of green bonds} and also to enhance a multilateral collaboration with different global bodies in terms of generating projects which are fulfilling the requirements and providing growth momentum to the member countries.

 

We have seen till now the main  focus of NDB has been towards green financing. We also need to have  clarity about what exactly are green bonds and what significance do they hold in modern global economy, along with the challenges also posed in front of them.

Green Bonds are instruments in which the proceeds will be exclusively applied (either by specifying Use of Proceeds, Direct Project Exposure, or Securitization) towards new and existing Green Projects – defined here as projects and activities that promote climate or other environmental sustainability purposes.

There are 4 types of Green bonds

 

1-Green Use of Proceeds Bond

2-Green Use of Proceeds Revenue Bond

3-Green Project Bond

4-Green Securitized Bond.

 

 

New Development Bank has shown the interest in development of projects related to highways. Railways etc and funded promoting highest environment sustainability concern.

 

As of now the NDB has approved major 7 major projects in all the member nations.

 

In July 2016, NDB had successfully reported about issuance of bank’s first green financial bond with issue size of RMB 3 billion. The bond’s nominal interest rate stood at 3.07%. The bank became the first international financial institution that issued a green financial bond in the China onshore bond market.

 

 

Even in Indian markets, NDB plans to raise around 500 mn US $ via use of Masala Bonds {rupee denominated bonds}.Masala bond is a term used to refer to a financial instrument through which Indian entities can raise money from overseas markets in the rupee, not foreign currency. Indian spices have been popular all over the world since ancient times.  ‘Masala’ bonds reflect the Indian angle to it.

 

In other words, they are rupee-denominated bonds issued to overseas buyers. This is how it is different from other instruments.  Before Masala bonds, corporate had to depend on avenues such as External Commercial Borrowings (ECBs).

By issuing bonds in rupees, an Indian entity is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign currency. 

The first masala bonds were issued by the International Finance Corporation (IFC), an arm of the World Bank, in the year 2013. Similar offerings from other countries have also been after the food or culture of that country like “dim sum” label for Chinese offshore issues or “Samurai” bonds for Japanese offshore issues.

 IFC was established in 1956 and owned by 184 member countries

As masala bonds are denominated in rupees, foreign investors will be taking the currency risk. So the key for the success of these bonds will be a stable exchange rate. Masala bonds are the first rupee bonds listed on the London Stock Exchange.

Owing to the needs which nation like Indian has had and vast diversities witnessed within our geographical stretches, we have to find the partners for our developing stories of our time. It will also be interesting to see the way in which NDB will later takes its shape in running profitable projects and also at same time addressing challenges faced.

 

 

HARSH VARDHAN PATHAK

 

email—–harshvardhanpathak88@gmail.com

Leave a Reply

Your email address will not be published. Required fields are marked *