The new development institution BRICS bank should be a bank of projects and not of policies and should ensure its credibility remains high, said a senior economist here Wednesday.
"It should be a bank of projects and not a bank of policies, it should ensure that the loans granted are commercially and economically viable and that will enable the new institution to be able to raise adequate funds from the market and utilise it to for the purpose of lending to the various institutions," said C. Rangarajan, chairman, Madras School of Economics.
Releasing a study titled 'BRICS Development Bank - Prospects & Challenges,' conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), the former chairman of the Prime Minister Economic Advisory Council (PMEAC) and former governor of the Reserve Bank of India (RBI) said the new bank has to ensure that its credibility remains high.
He said the assessment of projects should be proper and their commercial viability should be a major criterion while giving the loans.
"We should welcome the setting up of the new development bank as it would fill an important vacuum. There is the need for additional institutions to provide infrastructure finance but the new institution will be able to play its role only if it establishes its credibility in the market," added Rangarajan.
Stressing upon the need for additional institutions to meet the growing infrastructure needs of developing economies, he said "BRICS Development Bank will be a supplemental institution to complement the existing efforts of multilateral and regional financial institutions."
Though the multilateral institutions like the IBRD (International Bank for Reconstruction and Development), ADB (Asian Development Bank), World Bank, IMF (International Monetary Fund) and others have played an important role in providing assistance to India, lot more such institutions are needed, Rangarajan said.
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"As far as World Bank is concerned, India is almost reaching the limit in terms of the total amount of credit that can be given, therefore, there are more than one reason for the need for new institutions," said Rangarajan.
He also said that the management structure of multilateral financial institutions like the IMF or the World Bank and even the regional development banks does not clearly reflect the changing structure of the global economy.
He said the BRICS (Brazil, Russia, India, China and South Africa) nations have just 11 per cent share in voting power in IMF however, their share in global economy is almost 20 per cent and in terms of PPP (purchasing power parity) their share is 27 per cent.
"Therefore there is a need for additional institutions to meet the growing infrastructure needs of the developing economies," he added.