At BRICS, India must bank on the NDB

Why in the News

The 18th BRICS Summit, chaired by India at Bharat Mandapam in New Delhi on 12 September, closed without a meaningful agreement on mobilising the New Development Bank (NDB), the grouping’s one tangible financial instrument and one that has under delivered for a decade. The grouping’s economic weight has grown without its institutional weight following. When BRICS came together in 2011 its five members contributed 20% of global GDP but held just 11% of the voting share at the International Monetary Fund (IMF). The expanded grouping now accounts for nearly 40% of global GDP and 55% of the world’s population, and the voting share has barely expanded. The contest is over what India should do with that gap. Russia and China press a de dollarisation agenda that India cannot join without damaging its ties with Washington.

What is the New Development Bank?

1. The New Development Bank: The NDB was established by the BRICS countries in 2015 to “mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging markets and developing countries”.
2. Headquarters in Shanghai: It is headquartered in Shanghai.
3. Equal voting among the five founders: The bank’s rules mandate equal voting shares among the five founders, so no founder can outvote another whatever it contributes.
4. The floor on founder control: The bank has opened its doors to new members, and the founders’ collective voting share cannot fall below 55%.

Why can India not join the de dollarisation push?

1. The grouping has no single geopolitical identity: Russia, China and Iran would like BRICS to be anti West, while India, Brazil and South Africa insist it is better understood as non West.
2. India United States ties: Lending itself to the Beijing and Moscow de dollarisation campaign would add to strain in India United States ties at a moment when those ties are already strained.
3. Medium term sustainability of the position: De dollarisation is an unsustainable proposition to advocate in the medium term.
4. Maximising the grouping without strengthening Beijing: India’s approach has to maximise the grouping’s potential without strengthening Beijing’s overall strategic position.

What is de dollarisation?

1. What the term claims: De dollarisation is the effort to cut the dollar’s role as the currency in which trade is invoiced, cross border payments are settled and reserves are held, and to move that role to another currency or to a basket of them.
2. What displacing the dollar would require: A substitute has to be fully convertible, deep enough to absorb reserve holdings, and served by a clearing system that sits outside dollar correspondent banking, and no member currency of the grouping meets all three conditions.
3. Why sanctioned economies press it hardest: A settlement route outside dollar clearing removes the leverage sanctions exercise through correspondent banks, which is what makes the campaign valuable to Moscow and Beijing. Eg. The NDB itself has extended no new credit to Russia since March 2022 in order to protect its own credit rating and dollar funding costs.
4. Contrast with local currency lending: Local currency lending denominates a loan in the borrower’s own currency to cut exchange rate risk, and it leaves the dollar’s invoicing role intact, so a member that will not join a displacement campaign can still use it.

How far behind its counterpart is the NDB, and where does its money go?

1. A decade of approvals: The NDB has approved only 139 projects worth about $43 billion since 2015, distributed mostly among its core members.
2. The Asian Infrastructure Investment Bank comparison: The Asian Infrastructure Investment Bank (AIIB), established around the same time, has gathered 111 approved members and committed about $69 billion across 350 projects.
3. The credit rating gap: The AIIB is backed by a AAA credit rating that the NDB cannot easily attain.
4. Money approved is not money moved: Only about $20 billion of approved loans had been disbursed, according to the bank’s own count.
5. The balance sheet is not growing: Stagnant asset growth continues to restrict the bank’s lending capacity.
6. The active portfolio: The active portfolio stands at $35.6 billion across 115 projects, since 24 projects and about $7.4 billion have been fully repaid or cancelled.
7. China and India as the two largest borrowers: China holds $9.41 billion at 26% and India $8.86 billion at 25%, together 51% of the active portfolio.
8. The remaining founders: Brazil holds $6.69 billion at 19%, South Africa $6.41 billion at 18% and Russia $3.78 billion at 11%, with Bangladesh the only non founder at $445 million.
9. Transport infrastructure and COVID-19 assistance: Transport infrastructure takes $13.5 billion at 38%, followed by COVID-19 emergency assistance at $9.00 billion and 25%.
10. The clean energy, water and digital shares: Clean energy and energy efficiency accounts for $3.69 billion at 10%, water and sanitation $3.22 billion at 9.1%, social infrastructure $1.28 billion at 3.6% and digital infrastructure $300 million at 0.8%.

Why can the founders not simply put in more capital?

1. Paid up capital as the route: Breaking the asset bottleneck would require the five founders to increase their paid up capital.
2. Russia’s constrained contribution: Severe domestic and geopolitical constraints mean not all founders can match higher commitments, most notably Russia, which is heavily sanctioned.
3. Sanctions reach the bank itself: Sanctions have strained the bank’s credit standing and its dollar funding costs.
4. Suspension of new credit to Russia: The NDB has extended no new credit to Russia since March 2022 to protect its AA/AA+ credit rating, even as Moscow and Beijing champion de dollarisation through the bank.
5. Equal voting as a veto on capital expansion: Any capital expansion is effectively held hostage by the financially weakest founder, because of the bank’s equal voting rule.

What has the NDB delivered for India?

1. The scale of commitments: The bank has secured commitments of nearly $10 billion across 32 projects for India.
2. Metro rail and the RRTS corridor: These include metro rail systems and the Delhi Ghaziabad Meerut Regional Rapid Transit System (RRTS) corridor.
3. The case for a wider borrower base: Expanding the bank’s operations to be on par with other multilateral lenders requires extending the same bargain to many more emerging markets and developing countries.

Why is local currency lending the more practical goal, and what does the rupee bond show?

1. The bank’s declared preference: The NDB has a marked preference for local currency lending, which appeals to emerging economies while volatility in foreign exchange markets is sustained by wars that are both military and economic.
2. Local currency lending against dollar replacement: Local currency lending reduces reliance on the dollar without replacing it as the currency for trade invoicing.
3. The 30% local currency target: The bank’s 2022-26 General Strategy commits 30% of its lending and borrowing to member countries’ local currencies, and the bulk of both still remains in dollars.
4. Renminbi skew in the local currency book: What local currency lending exists is skewed heavily in favour of the Renminbi.
5. The ¥7 billion Panda bond: The NDB priced a ¥7 billion three year Panda bond, meaning a Renminbi denominated bond issued in China by a foreign issuer, in the China Interbank bond market, and issuance of such bonds in 2026 has risen approximately 91% year on year.
6. A rupee bond deferred since 2016: The rupee bond was first discussed in 2016, then slated for October 2023 and then for end March 2026, and has still not been issued.
7. The Rs 25,000 crore rupee bond programme: The bank floated a rupee bond programme to mobilise around Rs 25,000 crore over five years, and the NDB President described the debut issuance in May as being at its “final stage”.
8. The 2026 New Delhi Declaration: The 2026 New Delhi Declaration did not feature a meaningful agreement on mobilising the NDB.
9. India’s focus on simpler local currency fixes: India’s focus in BRICS next year should be on simpler fixes to local currency challenges rather than on a currency project.

Challenges to the New Development Bank

1. Most of its capital cannot be lent: The bank’s authorised capital is largely callable rather than paid in, so its usable balance sheet is a fraction of the headline figure. Eg. Of an initial subscribed capital of $50 billion, only $10 billion was paid in, phased over seven years.
   The Fix: Fix a dated schedule for the remaining paid in tranches, so the lending capacity is set by a calendar rather than by each founder’s fiscal position in a given year.
2. Absence of a concessional window: The bank lends on near market terms, which prices out the low income borrowers a development bank exists to reach. Eg. The World Bank runs the International Development Association as a separate concessional arm, and the NDB has no equivalent.
   The Fix: Create a concessional facility inside the bank, funded by grant contributions from its larger members, so the poorest borrowers have a window they can actually use.
3. Membership growth has been slow and shallow: A narrow membership keeps both the capital base and the political constituency small, which is what limits a multilateral lender’s reach. Eg. Only Bangladesh, the United Arab Emirates, Egypt and Algeria have been admitted beyond the five founders.
   The Fix: Publish an accession timetable with stated capital subscription terms, so a prospective member can plan its entry instead of waiting on a founders’ decision.
4. Borrowers outside the founding five have no voice: New members join without altering founder control, so a borrowing country cannot shape the terms on which it borrows. Eg. The AIIB scales voting power to capital subscription, so a new member’s stake translates into influence.
   The Fix: Reserve a fixed bloc of Board seats for non founder borrowing members, so the terms of lending are set with the borrowers in the room.

Conclusion

The grouping’s problem is not that it lacks instruments but that its most usable one has been left idle. A bank whose disbursement runs at under half its approvals, and whose capital expansion is blocked by its own voting rule, is not a challenge to anyone’s financial order. India chairs the grouping and holds a quarter of the bank’s active book, which is the position from which a governance change can be pressed. The marker to watch is the debut rupee issuance, since a programme deferred three times will only be believable once the paper is priced.

About BRICS

1. Origins of the grouping: The acronym BRIC was coined in 2001 by a Goldman Sachs economist to identify high growth emerging economies, the first meeting of Foreign Ministers took place on the United Nations General Assembly margins in 2006, and the first formal Leaders’ Summit was held in Yekaterinburg, Russia in 2009.
2. Expansion and the Partner Country category: South Africa joined in 2011, expansion was decided at the 2023 Johannesburg Summit with Egypt, Ethiopia, Iran and the UAE joining in 2024 and Indonesia in 2025, and a Partner Country category was introduced in 2024 for states such as Malaysia, Thailand and Nigeria.
3. Stated objectives: Its stated objectives are reform of the UNSC, IMF and World Bank for equitable representation, a multipolar order, financial autonomy from the dollar and SWIFT, sustainable development and synchronised stances on counter terrorism and cybersecurity.
4. The Contingent Reserve Arrangement and BRICS Pay: Beyond the NDB, the grouping runs the Contingent Reserve Arrangement, a $100 billion short term liquidity backstop, BRICS Pay as a cross border payments pilot, a remote sensing satellite constellation and the Partnership on New Industrial Revolution.

Back2Basics: Asian Infrastructure Investment Bank

1. The Asian Infrastructure Investment Bank: A multilateral development bank that finances infrastructure and other productive sectors across Asia and beyond.
2. Proposed 2013, operational January 2016: It was proposed in 2013 and began operations in January 2016, with its headquarters in Beijing.
3. India’s shareholding: India is a founding member and its second largest shareholder after China.
4. AIIB as the benchmark for the NDB: It was established at the same time as the NDB and is the standard against which the NDB’s approvals, membership and credit rating are measured.

Matching Previous Year Question

“[2014, GS2, 12 marks] India has recently signed to become founding a New Development Bank (NDB) and also the Asian Infrastructure Investment Bank (AIIB) .How will the role of the two Banks be different? Discuss the significance of these two Banks for India.”