$2b Indian credit line opens for Bangladesh

Bangladesh yesterday signed an agreement with India's government-designated Exim Bank of India for $2 billion in low-cost loans for over a dozen social and development projects.

The funds will be used for 14 projects in railway, road transport, power, education, vocational training, health, ICT, shipping, and economic zones.

Mohammad Mejbahuddin, senior secretary of the Economic Relations Division and Yaduvendra Mathur, chairman of Exim Bank of India, signed the agreement at the ERD auditorium in Dhaka.

The credit carries 1 percent interest rate with repayment period of 20 years and a grace period of five years.

Bangladesh also receives soft loans from countries such as China, which carries an interest rate of 2 percent with a repayment period of 20 years.

Among multilateral organisations, the World Bank charges a 0.75 percent interest rate with repayment period of 38 years.

Japan now charges 0.01 percent as service charges, the lowest among all, with a repayment period of 50 years, including a 10-year grace period.

This is the second line of credit from India to Bangladesh.

The first credit of $1 billion was extended to Bangladesh following an agreement in 2010, and was concentrated predominantly in the railway sector.

The $2-billion line of credit is the biggest credit line India has so far extended to any country, said Mathur.

“This is an indication of the very high importance and priority for our friendly relations and for financing social and other development projects in Bangladesh.”

“It will pave the way for deeper economic relations between the two countries.”

This is the biggest and cheapest loan India has extended to any country, said Harsh Vardhan Shringla, Indian high commissioner to Bangladesh

“It is also the manifestation of the importance our government attaches to its relationships with Bangladesh.”

The two countries have also constituted a review mechanism for assessing the pace of the implementation of projects under the credit line, he added.

This mechanism has been very effective so far, in terms of sharing experiences and learning from each other, he said.

The implementation of projects will be much faster compared to the first credit line, as both sides have sufficient experiences in handling projects under the line of credit mechanism, he added.

Separately, Exim Bank is also working on a $1.6 billion in credit to Bangladesh India Friendship Power Company Ltd, which is setting up the 1,320-megawatt Rampal coal-fired power plant.

The bank is opening a representative office in Bangladesh which will not only help in the implementation of the line of credit but also open different types of avenues for investment and trade between India and Bangladesh. Mejbahuddin said the conditions of the second credit are similar to those of the first.

For example, the size of the import content of the credit line will be 75 percent of the overall procurement in case of goods. 

However, in case of public works, the limit has been lowered down to 65 percent from 85 percent of the first one, said Mejbahuddin. “If needed, we will be able to increase our share through negotiations,” he said.

He however said Indians who work in the projects will not enjoy tax exemption as well as goods and services to be imported from India would not be duty-free.

As per conditions by Exim Bank, contractors will have to come from India, but they have to win the contracts through competitive bidding, said the senior secretary.

In case of consultancy services, Bangladesh will be able to use the funds if such services are taken from India. But the country will have the opportunity to take it from countries other than India, but on its own expense, he said. 

Mejbahuddin also touched upon the projects being implemented under the first credit line.

Because of some initial hiccups and technical glitches Bangladesh has been able to disburse about 30-35 percent of the first credit line, he said.

“Learning from experience we have identified projects upfront for the second credit line. We are at a very good position to immediately start some of the projects,” he said.

All of the 15 projects under the first credit have received financial concurrence of Exim Bank of India. Seven of the projects have been completed and the rest are in different stages of implementation, the Indian High Commission said in a statement.

Speaking at the signing ceremony, Shahidul Haque, foreign affairs secretary of Bangladesh, said this is another step toward further strengthening the relationships between the two countries.

“Our relationship has matured not only in the political sphere but also in the development sphere,” he said adding that the projects under the credit line would benefit the people of Bangladesh.

At present, Exim Bank of India has about $29 billion in loan commitments to 63 countries. Abul Kalam Azad, principal secretary of the Prime Minister's Office, also spoke.