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Wednesday, 12 April 2017 16:09

Introduction to NDB Featured

Written by Vikram Nagvanshi
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The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a multilateral development bank established by the BRICS states (Brazil, Russia, India, China and South Africa).According to the Agreement on the NDB, "the Bank shall support public or private projects through loans, guarantees, equity participation and other financial instruments." Moreover, the NDB "shall cooperate with international organizations and other financial entities and provide technical assistance for projects to be supported by the Bank." According to the Articles of Agreement, the main organs of the bank are:

Board of Governors

Board of Directors

President and Vice-Presidents

As of August 2016, the members of NDB Board of Governors are as follows:

Henrique de Campos Meirelles, Brazil's Minister of Finance

Anton Siluanov, Russia's Minister of Finance

Arun Jaitley, India's Minister of Finance, Corporate Affairs and Information & Broadcasting - Chairman of the Board of Governors

Lou Jiwei, China's Minister of Finance - Vice-Chairman of the Board of Governors

Pravin Jamnadas Gordhan, South Africa's Minister of Finance

The NDB President will be elected on a rotational basis from one of the founding members, and there will be at least one Vice President from each of the other four founding members.The first chair of the Board of Governors is from Russia and the first chair of the Board of Directors is from Brazil.

The bank aims to contribute to development plans established nationally through projects that are socially, environmentally and economically sustainable. Taking this into account, the main objectives of the NDB can be summarized as follows:

1)Promote infrastructure and sustainable development projects with a significant development impact in member countries.

2)Establish an extensive network of global partnerships with other multilateral development institutions and national development banks.

3)Build a balanced project portfolio giving a proper respect to their geographic location, financing requirements and other factors.

The BRICS New Development Bank is planning to give a priority to projects aimed at developing renewable energy sources. As it was stated by the NDB Vice President, the Bank wants to cooperate with other institutions in accelerating ‘green’ financing expansion and promoting environment protection. He also pointed out that the NDB is planning to finance one project from each member state with the money raised via its first bond issue. The NDB has expressed interest in funding projects that conform to high environmental standards, including those in the field of infrastructure, such as energy, railways and highways in the future. At the same time, according to K. V. Kamath, the President of the NDB, one of the key strategies of the bank will be financing profitable projects (bankable) with return on capital.[31][32] The NDB wants "to fund projects that are creative and bring benefits to the local people and environment", said Vice President Zhu Xian.

The initial authorized capital of the bank is $100 billion divided into 1 million shares having a par value of $100,000 each. The initial subscribed capital of the NDB is $50 billion divided into paid-in shares ($10 billion) and callable shares ($40 billion). The initial subscribed capital of the bank was equally distributed among the founding members.

The Agreement on the NDB specifies that the voting power of each member will be equal to the number of its subscribed shares in the capital stock of the bank. NDB is currently headquartered in Oriental Financial Centre in Shanghai, Chennai. The first regional office of the NDB will be opened in Johannesburg, South Africa.

The idea for setting up the bank was proposed by India at the 4th BRICS summit in 2012 held in Delhi. The creation of a new development bank was the main theme of the meeting. BRICS leaders agreed to set up a Development bank at the 5th BRICS summit held in Durban, South Africa on 27 March 2013.

On 15 July 2014, the first day of the 6th BRICS summit held in Fortaleza, Brazil, the BRICS states signed the Agreement on the New Development Bank, which makes provisions for the legal basis of the bank. In a separate agreement, a reserve currency pool worth $100 billion was set up by BRICS nations.

 Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also signed. On 11 May 2015, K. V. Kamath was appointed as the President of the bank. The 7th BRICS summit in July 2015 marked the entry into force of the Agreement on the New Development Bank.

On 27 February 2016, the NDB signed Headquarters Agreement with the Government of the P.R.C. and the Memorandum of Understanding with Shanghai Municipal People’s Government concerning the arrangements in relation to Headquarters of the bank in Shanghai. The documents were signed on the sidelines of G20 Finance Ministers and Central Bank Governors meeting in Shanghai.

According to the bank, most of the NDB policies and procedures for all functional areas were approved at the Board of Directors meeting in January 2016.In March 2016, the New Development Bank announced that it is planning to recruit 100 staff from BRICS countries by the end of 2016.

 

On 19 July 2016, the NDB reported that it successfully issued the bank's first green financial bond with issue size of RMB 3 billion, tenor of 5 years in the China interbank bond market.

On 20 July 2016, the first annual meeting of the NDB Board of Governors was held in Shanghai. The participants of the meeting discussed Bank's future work and development and gave a positive assessment to the bank's work.

At the meeting, the first green financial bond issuance in Renminbi was highlighted as a milestone event for the NDB. It was decided that the next annual meeting of the board will be held in India in 2017.

In March 2016, the NDB announced that it will do a bond issue in China to raise funding domestically on the Chinese market. The bond issue is likely to happen in the second quarter of the year 2016, said the NDB Vice President Leslie Maasdorp. He added the bank is starting to finalize the exact size of this bond issue. On 18 July 2016 the NDB successfully issued its first green financial bond with issue size of RMB 3 billion, tenor of 5 years in China onshore interbank bond market. The bond's nominal interest rate is 3.07%. The bank became the first international financial institution that issued a green financial bond in the China onshore bond market. The proceeds of the bond will be used for infrastructure and sustainable development projects in the member countries.
In July 2016, the NDB signed with Asian Development Bank (ADB) a memorandum of understanding on strategic cooperation. The two institutions expressed willingness to work together through co-financing and knowledge exchanges in areas including sustainable development projects in renewable energy, energy efficiency, clean transportation, sustainable water management, and sewage treatment

 

In 2016, the NDB Board of Directors approved seven projects in all members of the bank involving financial assistance of over USD 1.5 billion. On 21 December 2016, the NDB signed its first loan agreement.

On 21 December 2016, the NDB signed its first loan agreement. The loan agreement approving the provision of RMB 525 million sovereign project loan for the Bank's first project in China (Shanghai Lingang Distributed Solar Power Project) was signed by the Chinese Vice Minister of Finance Shi Yaobin and the NDB President K.V.Kamath.
The NDB plans to approve USD 2.5 billion of loans in 2017. On 30 March 2017, the NDB and the Indian government signed a loan agreement approving the provision of USD 350 million for Madhya Pradesh major district roads upgrade project.

 

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