BRICS Current Affairs - 2020

India pitches for independent BRICS credit rating agency

India has pressed the BRICS (Brazil, Russia, India, China and South Africa) nations to set up an independent credit rating agency of the five-member group. It was on sidelines of the first meeting of BRICS Finance Ministers and Central Bank Governors held along with IMF/World Bank Spring Meetings in Washington, US.

Key Facts

India sought the support of BRICS members in building consensus amongst BRICS membership on the BRICS Rating Agency proposal. It also requested to take forward report to be submitted by expert group set up under the aegis of BRICS Business Council to study the feasibility of the BRICS Rating Agency.

India had first mooted the idea of having such an agency for the BRICS grouping to solve impediments for the emerging market economies posed by present credit rating agency market that is dominated by S&P, Moody’s and Fitch. These three western rating agencies hold over 90% of the sovereign ratings market.

Emerging economies claim that western ratings firms are biased, pessimistic on the developing countries and optimistic on developed nations. They also have concerns over methodologies of the three global agencies.

Other issues discussed during meeting

It discussed enhancing project pipelines of New Development Bank (NDB) evenly across member countries, expansion of NDB’s membership. It also deliberated on proposal of South African Presidency for setting up working group on illicit financial flows and BRICS Task Force on Public Private Partnership. Issues related to BRICS Contingent Reserve Arrangement (CRA) as well as BRICS Bond Fund were also discussed.

Cabinet approves pacts signed by Exim Bank under BRICS mechanism

The Cabinet has approved signing of Interbank Local Currency Credit Line Agreement and Cooperation Memorandum relating to Credit Ratings by Exim Bank with member banks under BRICS Interbank Cooperation Mechanism. These agreements were highlighted in BRICS Leaders Xiamen Declaration adopted in Xiamen, China in September 2017.

Cabinet has authorized Board of Directors of Exim Bank to negotiate and conclude any individual contracts and commitments within their framework as both agreements are non-binding in nature.

Significance of Agreements

They will promote multilateral interaction within area of mutual interest which will deepen political and economic relations with BRICS nations. It will position Exim Bank in international platform along with large development finance institutions of BRICS member countries.

They will enable Exim Bank to leverage these agreements and can enter into bilateral agreement with any of these member institutions to raise resources for its business. It will enable lending in single currency by any two member institutions.

Exim Bank

Exim Bank finances, facilitates and promotes India’s international trade. It provides competitive finance at various stages of business cycle covering import of technology, export production, export product development and export credit at pre-shipment and post-shipment stages and investments overseas. It raises resources in off-shore market in diverse currencies and swaps to mitigate the risk.

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.

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.