India’s EXIM Bank to embark on new cooperation with Bangladesh after ‘historic’ LoC

After the signing of the biggest-ever line of credit, India’s EXIM Bank is now all set to open its Dhaka office and embark on new cooperation with Bangladesh, the chairman of the neighbouring country’s official export credit agency has said.

Nurul Islam
Published : 10 March 2016, 11:34 AM
Updated : 10 March 2016, 12:16 PM

“This (new LoC) is a new chapter which our prime minister has opened,” Yaduvendra Mathur, who is also the Managing Director of the Bank, told in an interview on Thursday before leaving Dhaka.

He termed the signing of the $2 billion line of credit on Wednesday a “historic event” and said now his bank was preparing to open an office in Dhaka to carry forward the work under the LoC.

“We have got all the approvals from Bangladesh. An officer for the office has already been selected,” Mathur, an Indian Administrative Service officer, said.

“This will be our first office in any of the SAARC countries,” he said, adding that the move would open up new areas of cooperation with Bangladesh for increasing trade and investment and promoting South-South cooperation.

“We can learn from each other. This is the footprint of South-South cooperation,” he said.

The EXIM Bank was set up in 1982 through an Act of Parliament as the external credit agency of India. It is a sovereign national entity that promotes, facilitates and finances India’s international trade.

It currently operates in 120 countries, and has so far helped over 700 Indian companies to set up their subsidiaries.  The Bank has also provided lines of credit to 63 countries.

It has offices in nine other locations including Washington, London, Dubai, Singapore, and three in African countries.

The bank has also helped many countries, including Malaysia, to set up their own Export-Import Banks.

“This (Bangladesh) engagement is the biggest ever. We are proud and we are happy that this government of India scheme has been taken up on such a big scale,” Mathur said.

Earlier in 2010, India rolled out a $1 billion line of credit to Bangladesh from which $200 million was later converted into grants. The loan was further extended to $862 million from the $800 million.

But the new LoC is “the most concessional loan”.

“The 1 percent interest rate has never been offered before (to any country),” he said, adding that this “government to government discussion is an indication of the strong friendship and the strong bonding the two PMs have”.

“Bangladesh is the most critical partner of India”.

He also hailed the projects which had been identified by the Bangladesh authorities.

The first LoC was mostly used for the railway sector. But this LoC is focused on social and development oriented activities.

“The money will be put to use where direct skill issues, technology colleges, and building hospitals are involved”.

He said through such projects the EXIM Bank would bring in its development experiences from across the world.

“We want to share what has worked, what has not worked in other parts of the world. It’s not that we are just lending money. We also want to share the challenges that developing countries like us face”.

He suggested that the Bangladesh government go for an early preparation of the detailed project report (DPR) as there would be many ministries involved under the second LoC compared with the first one.

“We are discussing setting up a joint working mechanism in this regard”.

He, however, said the bank’s experience in Bangladesh so far had been “far far superior to many countries”.

Under the agreement, 75 percent of the project materials must be bought from India. The limit will be 65 percent in case of public works. But these limits could be relaxed further through discussions, according to the agreement.

Mathur said these conditions were applied to all countries. “This is part of the global trade. If you take loans from other countries, the same conditions will apply”.

The interest rate has been fixed at 1 percent annually with a 20-year repayment term, including a five-year moratorium, which he termed “much concessional”.

“It costs me four times”,’ he said, “The import from India is part of the conditionalities under concessional finance”.

He said when they would open office in Dhaka they would promote local currency financing mechanism in doing businesses.

“We finance in dollar now. But we are not rated as AAA country, which is pity, though our fundamental is very strong.  This is also true for Bangladesh and Sri Lanka. Rating agency is not generous towards developing countries.

“It is these issues which are holding us down. This is why our South-South cooperation is needed.

“We are encouraging under the BRICS framework to lend in local currency so that I can lend Bangladesh companies in India in rupees, and Indian companies can get loan in taka in Bangladesh, so that currency risk is not there”.

He said their Dhaka office would also help Bangladesh companies to know more about India and “we can help them form joint ventures, find partners. And Indian businesses will also come to Bangladesh”.

He said many major Indian companies were keen to invest in Bangladesh. The Adani and Reliance had already announced investing $11 billion in different sectors of Bangladesh in the Jan investment summit in Dhaka.

He said the availability of energy was the only bottlenecks he found in Bangladesh.

“We announced funding of the Maitree power project. On the direction of the government of India we are financing the 1320-MW Maitree power project”.

“Exim bank will be very happy to support the development of the power market,” he said.