Chennai: Former RBI (Reserve Bank of India) governor C. Rangarajan on Wednesday said the bonds to be floated by the New Development Bank promoted by the Brics (Brazil, Russia, India, China, and South Africa) should have liquidity to ensure their easy realization.

Speaking after releasing a study undertaken by Assocham on ‘Brics Development Bank: Prospects and Challenges’ in Chennai, he said that it was felt that some part of the resources could be invested in bonds raised by the New Development Bank.

“As all those developing countries, including India follow certain principles, while investing their foreign exchange reserves, because Foreign Exchange Reserves are a buffer. They should be invested only in paper, which is liquid and it can be realised very quickly. And that is the purpose of holding reserves," the former chairman of the prime minister’s economic advisory council said.

If some part of the reserves were to be invested in bonds floated by New Development Bank, these bonds will also have to be marketable, must have liquidity and must have the highest grade given by the rating agents, he said.

For all these reasons, Rangarajan observed, it is important that the credibility of the new institution is well established and that of the bonds issued is very high.

Talking about the conditionalities set by banks while granting loans, Rangarajan said, “Banks, which are lending on the basis of the projects should restrict their conditionalities in relation to that particular project... At the same time proper viability of the project should be a major criteria while giving loans."