The bank that has a strong client selection culture but follows the client even when he expands operations to another country has been adjudged the Best Foreign Bank in India in the Large Foreign Banks category in the annual BT-KPMG Best Banks Study for 2019-20. Bank of America (BofA), despite being sixth in size, has topped in growth in advances and deposits. However, it ranks lower on other broad srength analysis parameters - it is second in capital adequacy, fourth in quality of earnings and eighth in quality of assets.
"Of course, we are not as big as the others (foreign retail banks), but we have been growing steadily. Our balance sheet has been growing between 34 per cent and 42 per cent annually. We have grown deposits steadily, by almost 75 per cent, over the last one year. Advances have grown 21-27 per cent. Profitability has been consistent as we have kept costs under control," says Kaku Nakhate, President and India Country Head, Bank of America.
All this is the result of several key initiatives taken over the years. "We have been banking with more corporates and continue to work with multinationals wanting to enter India. We have made significant technology investments in India to digitise our platforms and opened touch points across client interfaces."
BofA, operating in India since 1964, has two entities in India - a bank and a securities firm (BofA Securities India Ltd, formerly DSP Merrill Lynch Ltd, is a licensed broker-dealer).
The bank, which counts Tatas, Reliance, Birlas among clients, focuses on Indian businesses going offshore or having operations offshore, apart from multinationals entering or having operations in India.
With its focus on efficiency, BofA selects its prospective customers with caution. "We have a strong client selection strategy, which focuses on clients we want to partner with. Second, as and when our clients expand their operations abroad, we follow them to provide our services in those markets as well," says Nakhate. The bank does not give project loans and big long-term loans in the country. This, along with client selection and focus on trade finance, has resulted in 'hardly any NPAs' over the years.
"The primary challenge in a globalised world is providing clients solutions and access to capital. This is where seamless digital platforms come into play. To service our client base, we have invested in digital solutions for payments, collections and supply chain financing," says Nakhate.
Though the bank wants to do more business with Indian companies as they grow across the world, it "has been a bit conservative in the last couple of years as corporates look to optimise the potential of the large Indian market for their next stage of growth," she says.
The bank also facilitates fixed income, investment banking and foreign direct investment flows.
While Covid-19 wreaked havoc on several sectors, BofA added over 40 new clients during the pandemic in 2020 and strengthened its import-export solutions. During pre-Covid days, several clients with large volumes were not ready to shift to digital processes and wanted physical documents picked up for approvals. "During the Covid lockdown, we shifted around 12 per cent of our India clients to electronic processes. Our teams hand-held clients as they shifted to digital platforms."
The bank also re-engineered some of its internal processes like shifting to UPI-based 24X7 real-time payments. "All of this is bringing efficiency, even as margins tighten," says Nakhate.
BofA does not have any plan to enter retail banking. But this does not mean that it has no plans to expand in India. For instance, it has been a pioneer at IFSC (International Financial Services Centre) in Gift City, Gujarat, where it has set up its Global Business Services Centre, a centralised facility for issuing bonds in international currency, and listed a few bond auctions. Nakhate believes this is going to be a beehive for the bank as well as the country.
The bank has also set up its global offshoring centre in Gift City where 1,500 to 2,000 people will work. "Why should Dubai or Singapore be international financial centres and not India, which will become the third biggest economy by 2030? GIFT City IFSC is where the next action is," says Nakhate. Over 24,000 out of 1.7 lakh BofA employees are in India, according to a recent report.
Nakhate is positive about operations in India and says RBI allowing a foreign-owned bank, DBS Bank India Ltd, a wholly-owned subsidiary of DBS Group Holdings Ltd, Singapore, to acquire Tamil Nadu-based Lakshmi Vilas Bank last year will encourage foreign banks in India. She is confident that foreign banks and Indian corporate houses will be allowed to bid for the two public sector banks that the government is planning to put up for sale.
Discussing the present state of the Indian economy, Nakhate says the industry had heaved a sigh of relief after tweaking of non-performing asset (NPA) and provisioning norms in the wake of the pandemic. The RBI's TLTRO (Targeted Long Term Repo Operations) has enabled Covid-stressed MSME and NBFC sectors to raise money at a reasonable cost, which is why the number of defaults has not been very high, she says. "As a country, we have slowed down NPA recognition, and some of these issues will get addressed in the current quarter (January-March). We have to wait for the proposed 'bad bank' (the AMC/ARC where government plans to park bank NPAs) but hope it can pick up common assets, ease stress and drive the much-needed lending growth even if we have a high fiscal deficit," says Nakhate.
She is upbeat about the future. "All said and done, Indian banks are not doing badly. In fact, private banks raised huge funds in 2020 and have become stronger. Now, state-owned banks need to raise capital this year," she says.
"Overall, I am quite positive about the way the Covid situation was handled. The process of economic recovery has already started. I think interest rates may inch up a bit, but not much. However, if we have to overcome the Covid shock, we must make growth the priority," she adds.
This is what Finance Minister Nirmala Sitharaman's 2021 Budget sought to address.
(The writer is a Mumbai-based journalist)