"Signed joint interpretive note with Bangladesh today to update Bilateral Investment Promotion Agreement to our new investment framework," he said.
Bangladesh will be using the Line of Credit for funding 17 priority infrastructure projects, including electricity, roads, shipping and ports.
India will be giving this credit at an interest rate of 1% a year, which Bangladesh has to repay over a period of 20 years with a grace period of five years.
The Line of Credit signing agreement took place in the presence of Finance Minister Arun Jaitley, who is on a two-day visit to Bangladesh, and his counterpart A M A Muhith here.
"We have stood by Bangladesh's attempts to develop and we will do so in the future. This significant agreement is a continuation of that effort," Jaitley said.
He said that India was determined to be a part of Bangladesh's economic development.
"For its own interest, India needs a strong, stable and developed Bangladesh. In the recent years, India granted $8 billion loan to Bangladesh in three stages and it is the highest amount of loan given to any country by India," he told reporters
Bangladesh Finance Minister Muhith said, "Bangladesh and India have excellent relations at the moment. They stood by us during our independence. We hope they will continue to do so in the future."
The $4.5 billion Line of Credit was announced during the visit of Prime Minister Sheikh Hasina to India in April.