Interbank Cooperation Mechanism Current Affairs - 2019
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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 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.
Five banks of BRICS Interbank Cooperation Mechanism (ICM) have agreed to establish local currency credit lines and develop cooperation on credit ratings. In this regard, they have signed agreement ahead of 9th BRICS summit to be held in Xiamen, China.
These five banks are Brazilian Development Bank, Russia’s Vnesheconombank, Export-Import Bank of India (EXIM), China Development Bank and Development Bank of South Africa.
The agreement will allow these five banks to establish framework mechanism to extend credit lines in local currencies to BRICS ICM members and BRICS companies against guarantees of signatory banks. The use of local currencies will help to promote mutually beneficial economic cooperation, increase trade, mitigate currency risks and facilitate companies in accessing BRICS markets.
Moreover, the agreement on credit ratings will allow ICM members to share information about internal credit ratings assigned to clients, as well as assignment methodologies and rating assessment. Information under it will be provided at request and on a confidential basis.
BRICS Interbank Cooperation Mechanism (ICM)
BRICS (Brazil, Russia, India, China and South Africa) nations had established the BRICS ICM to enhance trade and economic relations amongst BRICS countries, and enterprises.