New Delhi: The New Development Bank (NDB) is not averse to lending to China’s Belt and Road Initiative, the bank's chief financial officer (CFO) and vice-president Leslie Maasdorp signalled in an interview last month. India currently accounts for a third of loan approvals by the bank, set up by the five BRICS (Brazil, Russia, India, China, South Africa) economies to challenge the dominance of developed countries.

Maasdorp, a South African national, was in India during the third annual general meeting of the board of governors of Asian Infrastructure Investment Bank (AIIB) in Mumbai. He added that of its total portfolio of $5.1 billion of approved loans, the bank has approved $1.7 billion to India.

Maasdorp also spoke about $2.4 billion of projects in the pipeline for India—one of the largest borrowers in the multi-lateral lending system— the proposed BRICS rating agency, and making NDB grow beyond the BRICS grouping. Edited excerpts:

With a plethora of multilateral banks now, how does a new bank such as NDB create a distinct space for itself?

Within the two dozen multilateral banks, there are probably three substantial multilateral banks. If you look at the total capitalization of all of these banks combined, and if you look at the demand for infrastructure, there is still a massive gap. In other words, all the multilateral development banks combined probably can only fill up 10-15% of the total funding needed in infrastructure…All of the different estimates on the funding gap suggests that the financing gap is so large that there is no competition amongst the banks. It’s not like that we have to find a niche space. 

Second point that I would like to make is that our bank has a specific member base. These are the large emerging markets; these are some of the fastest growing economies like India, like China and so on or big emerging markets like Brazil. These economies are significant contributors to global growth. In fact, more than half of global growth comes from these countries. And emerging markets will continue to be the major contributors to global growth. So, our membership of countries, because they are fast growing, urbanizing, industrializing; there is a massive need for infrastructure. That’s going to continue for a good couple of decades. So, we have a solid platform for our business.

Will NDB focus beyond BRICS countries?

NDB is a creation of BRICS. If you look at the Articles for our bank, in 2015 when it was signed by the five countries, it says very clearly that the bank is a global bank. It started out as BRICS countries. So, this bank will also expand in membership. It will also become more global. And, it is already defined in the Articles about how it is going to expand. It says that the BRICS countries will dilute 55% (of their stake). So, now BRICS countries own 20% stake each. They will dilute 11% each to 55%. And the other 45% will be divided into borrowing members and non-borrowing members. 

So, which are the new members now you are looking at for NDB?

It is difficult to say because they have not applied yet. We haven’t started the process yet. We are still refining the modalities of how we are going to bring the new countries, in defining the criteria, defining the procedures and so on. But the bank’s Articles authorize that we will have $100 billion of capital and at the moment we have $50 billion of subscribed capital. So, to go to the $100 billion, we will require to expand to bring new members. So, at some stage in next couple of years, the bank will grow beyond five countries.

Which are the countries who have evinced interest in becoming members?

It is difficult to pinpoint countries as I said that the process is not been defined yet. I will say there will be a mixture of both fast growing and developed countries especially in Asia. But what we are likely to do is to look at countries through different parts of the world. I would anticipate that there will be countries from Latin America coming in because Brazil is located there. There will be African countries coming in because South Africa is located there. There will be Asian, Central Asian and East European countries coming in because Russia is located there. It is difficult to single out countries at this stage.

How do you manage some of the contradictions such as China’s ambitious Belt and Road Initiative? India on its part has been critical of China developing the China-Pakistan Economic Corridor (CPEC). If there is a proposal for BRI, what will your stand be?

With respect to Belt and Road Initiative, this is a significant economic integration strategy initiated by China but it is not only a China initiative, right? It involves 65 countries. It is more of a global, cross-continental kind of initiative. So, one should see in that context. I mean China, India are two very important countries, big economies but this thing involves a lot more than China, India; that’s the first point.

Secondly, the fact that there is contestation around one specific project doesn’t detract from the idea that China and India would both benefit significantly from the economic multiplier benefits from a lot of these projects. This is about providing road infrastructure, port infrastructure, integrating these economies in more dynamic ways to facilitate trade, economic integration of these economies…It is not China having a strategy to expand and extend its influence in economic terms.

But Belt and Road is been viewed as hegemonic in nature.

I guess, maybe that’s one perspective on the Belt and Road. Everything that we have attended in listening mode //chk// because we are only in the five countries. We are not doing cross-border projects involving many of these Belt and Road countries that are not our members. AIIB is more active in that space. But it is likely that we could co-finance; for example we have really started now, we are going to co-finance the Mumbai Metro with AIIB. It is very likely that we could co-finance projects which touch Russia, India, China, certain other countries in this jurisdiction, our members that might be branded Belt and Road. Remember that Belt and Road is an elastic concept based on no clearly defined path of what constitutes Belt and Road…It is still evolving.

So, as a bank you wouldn’t be averse to financing it?

The bank will support anything that is in line with our Articles that develops infrastructure and sustainable development in these five countries. We are focused on executing on our mandate which is mobilizing finance as much as we can to provide multi-economic benefits to infrastructure provision, helping our economies grow.

What is the status of the proposed BRICS rating agency as pushed by Prime Minister Narendra Modi?

I know that there has been a study and there is a discussion taking place on the idea of a BRICS rating agency. When India chaired the BRICS Summit, they did a feasibility study into the idea of establishing an emerging market focused rating agency. This has been in discussion part over the last two years. We have not been central to that discussion as a Bank. For the last two years, we have been involved in setting up the Bank, building our loan book, working on our own credit rating. So, we have obtained a domestic AAA credit rating in China as NDB. We are now in the process of obtaining an international credit rating.

I think there is -- as outlined in the study that has been done -- clearly a space for new players in the market. But you can’t set up a credit rating agency overnight. It needs to develop its methodology; it needs to carve out its niche to start to rate companies. The top three rating agencies are between 80 and 100-110 years old. So, it takes a very long time to build up that kind of market share because rating agencies are gatekeepers to the capital markets. They are really premised on confidence and trust.

Are India and China on the same page on the issue of such a rating agency?

I believe they are on India’s exploration of a BRICS rating agency. But I am not certain that a final decision has been taken after the feasibility study that yes, let’s go ahead…None of those decisions have been made. The idea of a rating agency is very widely supported, but on the execution side—the how?-- how to be capitalized, where will this thing be based, who is going to do the initial anchor funding for it, how will it be governed, none of those issues have been finalized.

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