On Tuesday, Bank of America infused $83 million (about Rs326 crore) into its India operations to boost its capital and support the bank’s growing assets in the country, its key growth market in Asia. With this infusion, the tier-I capital of the bank, consisting of equity and reserves, has risen to $466 million.
Earlier, in 2005, it had injected $175 million, or Rs767 crore, into its India operations. According to Bank of America’s managing director and country executive in India Vishwavir Ahuja , the latest capital infusion is a move to strengthen the bank’s operation in the country even though it is not looking for any acquisitions in India. Bank of America will also never chase retail assets in India, he says. Edited excerpts:
Is this capital infusion a part of a larger plan for the bank when the Reserve Bank of India opens up the financial sector in 2009?
No, I think it’s entirely to do with our existing business operations. It just reflects the momentum that we have in our existing business activities in India. So, it is not related to any, if I may say, larger goal or objective.
In a simple way, to reflect that fact that our business operations in India are doing extremely well. To feed that momentum, we need more capital.
What would be your plans for India when the banking regulator throws the financial sector wide open in India in 2009?
I think that question may be avoided.
For the very simple reason that opening up the financial sector in 2009 is a completely uncertain development.
Do you think it will open up?
I don’t know. Frankly speaking, if you ask me, there may be some relaxation to the current guidelines. But I don’t know what shape and form it will take. So, it is not even fair to try to predict. There is currently some government dispensation and we are all pretty much operating within that. We have taken that dispensation as norm currently.
I don’t think Bank of America has a view on that. We take the current regulations as they are applicable today and are operating within that. And we are pretty satisfied with the way things are.
So, there are no concerns or issues. Therefore, speculating as to what will happen doesn’t really add value.
What’s your business profile now? And what would it be post-April 2009 if the government opens up the sector?
As I told you, Bank of America has absolutely no view on what regulatory changes may happen in the future.
Will you be looking for anyacquisitions?
We operate in India as a corporate investment bank. We are not in the consumer business, we are not in the capital markets business, but we have a whole range of corporate products aimed at the large corporate and financial institutions. We have capital raising activity on the debt side.
So, you are not interested in some local acquisitions?
Well, we are a foreign bank and we can’t acquire.
Any special activity in the Indianmarket?
We do energy derivative business. We will expand to other areas (in commodities). We are a global market player. Where you may find us somewhat distinctive in character is in our activity to take large Indian corporations and financial institutions, those who have an international orientation and want to become leaders of the global scene, to the market. We help these companies in accessing capital both in the debt market and also in the equity market. Basically, we provide financing and capital-raising support.
Do you plan to incorporate your bank locally?
This is not relevant in the current scenario. Let me tell you, we are a very focused organization. All these questions are relevant for a player who wants to gain a national footprint. As far we are concerned, we are providing very sophisticated products and services to a very sophisticated group of clients.
Why are you not venturing into retail banking?
For the very simple reason that this is our business model.
Barclays Bank Plc. and Deutsche Bank AG have already started retail in India.
That’s their call. I can’t speak for them. But as far as Bank of America is concerned, our business model in India is a corporate investment business model.
You have presence in five cities. Do you plan to expand?
As of now, we are in five cities and expansions can happen only through new branch licences. We don’t have any immediate branch licence agreement pending or anything like that.
Your capital infusion is a sort of routine activity now?
It depends entirely on the need. The capital that we got in 2005 was enough to support us to where we are now. But given the expansion of our operations in India, we would need more capital. As of now, our capital adequacy ratio is satisfactory. But given the growth, in the near- to medium-term future, we thought we need to infuse capital right away. So that the growth momentum is not retarded.
Where do you see the bank’s growth coming from?
Across the entire range of our activities. Bulk of the growth is coming from in terms of our debt capital market activities and our derivatives business.
You are one of the largest organizers for syndicated loans? Do you still invest in India for your clients?
We don’t do private equity. We do have another group—the Special Situation Group, which looks at unique situations such as distressed debt transactions. We look at such situations to invest in.
But we don’t have, in the traditional sense, a private equity group.
Do foreign players approach you to invest in India?
No, we don’t do that. We don’t act as an intermediary. We extend products and services directly to our clients.
How about competition?
This is an intensely competitive market. There is significant competition from both international players and now domestic players. You have the large global banks. Then again, specialized investment firms. You have other financial institutions here who are non-bank. But in time they compete with many of the common spaces we operate in. And there are large local players, who are also becoming very sophisticated and have large resources at their command. They also want to target large institutions. So the target client base that we have, there is a significant competition.
Is your client base shrinking?
No. Our client base is very loyal. And, if anything, it is increasing. In fact, in the last 12 months, we have introduced large Indian firms to the US debt market. We have closed two transactions for the Reliance Group and one each for Indian Oil Corp. Ltd and Tata Chemicals Ltd. For the first time ever, we were the ones who took India’s name to the US debt clients—who never invested in the country. They were large US insurance firms, which usually buy high investment grade papers from developed nations. This was the first time when an emerging market paper was taken to such an investment grade market.
What’s India’s contribution to your global balance sheet?
This is not what I should be answering. People who have an idea of the global balance sheet should answer it. As far as I am concerned, we just want to grow this business.
Inorganically, or organically?
Organically. I have already mentioned that.