Finance Minister P Chidambaram on Sunday asked the Asian Development Bank (ADB) to double its lending capacity to $20 billion a year in 20 years to help emerging market and poor economies. He flayed ADB for raising loan charges, despite opposition from most countries.
"Over the past five years, since the last General Capital Increase, annual lending capacity of ADB under Ordinary Capital Resources has been $10-11 billion. We should aim to have ADB double its lending capacity over the next 10 years," Chidambaram said in his address to annual meeting of ADB in Astana, Kazakhstan on Sunday.
He urged ADB's member countries to give this issue a serious consideration and quickly come to an agreement. Most of ADB's lending comes from its ordinary capital resources, offered at near-market terms to lower- to middle-income countries.
Chidambaram said as the main developmental Bank of the region, ADB should be sufficiently resourced to support the growing needs of the members, lest its capacity to assist its members to address serious challenges such as fighting poverty or developing much needed infrastructure is greatly diminished.
The Sustainable Level of Lending (SLL) can be increased by adopting a comprehensive strategy of augmenting income and reducing expenses, the finance minister said.
Besides falling interest rates, rapidly-rising administrative expenses and stagnant or declining disbursements are the main reasons behind the sharp decline of SLL from $11 billion, projected in 2010, he noted. Since then, disbursements have averaged only around $6.5 billion a year, he pointed out. On the other hand, actual administrative expenses have been growing at 10 per cent a year.
"Every penny saved through economy in expenditure or earned through interest income will add to our financial position and help us lend more," said the finance minister.
Instead of looking at these measures, the ADB recently chose to increase loan charges despite stiff opposition of almost the entire clientele, he added. "As a regional bank, ADB in its functioning must reflect the aspirations of its regional members. I will request ADB to reconsider the increase in loan charges that was opposed by most of the members," he said.
The ADB upped the contractual spread to 50 basis points (bps) over London interbank offered rate (LIBOR) for loans negotiated on or after January 1, 2014 from 40 bps in the previous six months.
In 2011, ADB had approved the introduction of maturity-based pricing on new libor-based loans to sovereign borrowers.
Under the new pricing structure, loans with an average loan maturity of up to 13 years will not attract a maturity premium. Loans with an average loan maturity of greater than 13 years and up to 16 years will be charged a maturity premium of 10 bps a year. Loans with an average loan maturity of greater than 16 years and up to 19 years will be charged a maturity premium of 20 bps a year. The maturity premium will be added to the effective contractual spread of 50 bps and will be applied for the life of the loan.
The finance minister said amid economic slow down, policies to revive growth in most emerging market economies, including in India, will have to be rooted in increasing investments, particularly in infrastructure.