The New Development Bank (NDB) is shifting its strategy to ensure 30% of its total portfolio is in local currencies by the end of 2026. This move aims to protect emerging economies from currency exchange volatility. For India, the plan includes a new Rupee-denominated bond program, with the PFRDA already allowing pension funds to participate in these investments.
The New Development Bank (NDB), established by the BRICS nations, is changing how it funds infrastructure projects. The bank has set a clear goal: to ensure 30% of its total lending is conducted in local currencies—such as the Indian Rupee, Chinese Renminbi, or South African Rand—by the end of 2026. This marks a strategic pivot for an institution that has historically relied heavily on the US dollar for the vast majority of its financial operations.
The primary reason for this transition is to shield member countries from the unpredictability of foreign exchange rates. When developing nations borrow in a foreign currency like the US dollar, they face a significant risk if their own currency loses value, making the repayment of the loan much more expensive. By increasing lending in local currencies, the NDB aims to provide more stable financial support, allowing these countries to grow their infrastructure without constantly worrying about global currency fluctuations.
For India, this shift has a direct practical implication. The NDB is working to launch a program to issue bonds denominated in Indian Rupees. This initiative is designed to help deepen the domestic capital market by providing another high-quality investment avenue. The Pension Fund Regulatory and Development Authority (PFRDA) has already taken a step to support this, permitting Indian pension funds to invest in NDB rupee bonds. This change allows domestic savings to be channeled more effectively into national development projects.
Moving away from the US dollar is a complex task. The dollar is the world's most liquid currency, meaning it is very easy to trade and invest. Local currencies often lack the same level of global liquidity, which makes it challenging for a large bank to shift its entire balance sheet quickly. Additionally, the NDB must navigate the views of international credit rating agencies. These agencies often use standards that prioritize dollar-denominated assets, meaning the bank could face friction if its portfolio moves too heavily into local currencies that these agencies view differently. The bank must carefully manage this balance to maintain its creditworthiness while fulfilling its mandate.
The success of this initiative will be closely watched by financial regulators and market participants. The most important update to follow will be the actual scale and volume of the Rupee-denominated bonds issued by the NDB, and whether the bank can successfully attract enough capital to hit its 30% target by the year-end deadline.