The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday approved the signing of two agreements to promote multilateral interactions to deepen political and economic relations with BRICS nations.

“The Cabinet approved the signing of Interbank Local Currency Credit Line Agreement and the Cooperation Memorandum Relating to Credit Ratings by Exim Bank with participating member-banks under BRICS Interbank Cooperation Mechanism,” the Finance Ministry said in a statement here.

As both the agreements are umbrella pacts and non-binding in nature, the Board of Directors of Exim Bank has been authorised to negotiate and conclude any individual contracts and commitments within their framework, it said.

Signing of the agreement will position Exim Bank in the international platform along with large development finance institutions. At an appropriate time, Exim Bank, leveraging this umbrella agreement, could enter into a bilateral agreement with any of these member-institutions to raise resources for its business.

As and when an opportunity arises for co-financing in commercial terms, by any two member institutions (say India and South Africa), lending in single currency by both the institutions would also be possible.

The initial master agreement on extending credit facility in local currency under the BRICS Interbank Cooperation Mechanism had a validity of five years, which expired in March.

It is understood that some of the member-banks have entered into bilateral agreements for local currency financing under the master agreement signed in 2012. Although the current conditions are not conducive to usage, it was useful to keep the same alive as an enabling feature in case a suitable opportunity materialises in the future.

Exim Bank raises resources in the off-shore market in diverse currencies and swaps to mitigate the risk. The umbrella agreement would serve as an enabler to enter into bilateral agreements with member-banks, subject to national laws, regulations and internal policies of the signatories.

The Cooperation Memorandum Relating to Credit Ratings would enable sharing of credit ratings amongst the BRICS member-banks, based on the request received from another bank.

This would be an ideal mechanism to mitigate the credit risks associated with cross-border financing. In future, such a mechanism could also serve as a pre-cursor to the proposal of having an alternate rating agency by BRICS nations.