Usha Titus, Joint Secretary, Economic Affairs division of the Ministry of Finance, signed the MoU on behalf of India at a special ceremony here at the Great Hall of the People.
China's Vice Finance Minister Jin Liqun, who was also the former Vice-President of the Asian Development Bank, has been appointed as the Secretary General of AIIB.
The Bank, to be headquartered in Beijing, is expected to be operational by next year.
The MoU specifies that the authorised capital of AIIB is USD 100 billion and the initial subscribed capital is expected to be around USD 50 billion.
The paid-in ratio will be 20 per cent.
Voting rights are to be decided after consultations among the members over fixing the bench marks which were expected to be combination of GDP and Purchasing Power Parity (PPP).
Based on this formula, India will be second largest share holder of the bank after China.
Elaborating on decision to participate in AIIB, Titus said India's view is that the new bank provides rich resource capital base for infrastructure financing, which is good for the regional development.
It will help to bridge the infrastructure deficit by playing a complimentary role along with other financial institutions like ADP and IMF and work for good governance, she told PTI.
Chinese Foreign Ministry spokesperson Hua Chua Chunying yesterday welcomed India's participation in new bank.
China regards India's support as a major boost to the bank's formation which was largely seen as an effort to enlarge funding for the Asian countries reducing the dependence on ADB and other Western-dominated global financial institutions like World Bank and IMF.
China was keen about India's participation and an invitation in this regard was extended by Chinese President Xi Jinping during his first meeting with Prime Minister Narendra Modi on the sidelines of BRICS summit in Brazil in July.
The AIIB is in addition to the BRICS (Brazil, Russia, India, China and South Africa) Development Bank formed this year, which will be based in Shanghai. It is set to commence its operations with an Indian as its President.
Besides India and China, other AIIB members are Vietnam, Uzbekistan, Thailand, Sri Lanka, Singapore, Qatar, Oman, the Philippines, Pakistan, Nepal, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Lao PDR, Malaysia, Mongolia and Myanmar.