Bank of America is focused on differentiating itself from the competition in India and also intends to forge closer business ties with its clients says Country Head Kaku Nakhate. Edited excerpts from an interview with Business Today -
Q: You are completing five years as country head. How has the journey been?
A: We as a bank have done pretty well. The reason being we have a great team that we have built in the last three-four years. Times were tough, so we really had to think through how we had to do our business much smarter. Winning market share in a bad market is difficult, winning market share in a good market slightly easier, as there is a feel good factor and we can get more business. In a downturn, you have to take away business from someone, which means lot of our top management focused on getting our strategy through and it also was to work through the strategy locally, because lot of our client acquisitions can be assisted with the global delivery and global products. We need to differentiate ourselves and that's what we have really done.
Q: Investment banking has slowed down quite a bit. How has it affected your business?
A: The whole industry has shrunk by 40 and 70 per cent if you look at capital markets and M&As (mergers and acquisitions) activities per se. But having said that I think you don't do banking only from the local point of view. You look at a lot of offshore things also. So, we have been also working on capital markets or taking Indian companies abroad to see new pools of capital. What we have been careful is not to do every IPO on the street, which was our earlier strategy, because the point is that the cost of compliance is definitely increasing and you need to be a little more diligent about the way you choose clients, the way you do your business and the way things will unfold. The landscape is also changing in our own country from a governance point of view.
What we did is we have actually focused on growing the bank. We have been spending lot of time getting more clients involved, getting more MNCs and taking away business from some of our competitors, investing in building the GTS (Global Transaction Services) franchise which wasn't prevalent at least in our bank and since we have a restriction of five branches at the moment, we have invested in technology, we have got better products down from globe. Now the clients that are dealing with us across the globe have the same comfort with us. We have invested a lot of time in growing our transaction business. Also on fixed income we have definitely been the leaders, the markets have been volatile, but our teams have done a great job in doing the fixed income. We have been spending time in consolidating client solutions. You may have corporate banking, GTS or investment banking and we are also strong in equities in the securities arm, so we have been holistic in our approach. We have not added clients in the very small and medium category as we don't think that's our strength.
Q: I would like to know about the recent deals that you have done.
A: The biggest deal was that of ING-Kotak, where we were representing ING. That has been an interesting deal. We did Diageo, we have done Jet-Etihad. We have a good team which can think through and look at structures and at the same time bring the best practices in the world on to the ground.
Q: Any of these deals was particularly challenging?
A: All these deal were, including the OVL deal that we did. It was a Mozambique asset and there were a couple of other people, it was a government deal on top of it. There were other sellers and we really needed to keep it under wraps. In India, as you have more complex and bigger organisations, the deals will be complex because structures that have grown over a period of time are quite complex. To add to that you may have rules and regulations of all the different regulators having an impact.
Q: Do you see more consolidations in the banking space happening like the ING-Kotak merger?
A: Consolidations should happen. A large part of the banking sector is also public sector. As the risk increases globally and as the regulations in the current scheme of things, and India also had to grow. So, as your companies become bigger, your banks have to be bigger, because one client can't be so much of your huge risk. So, you need bigger banks to be able to have a bigger risk appetite, and be able to grow into different products. We would always look for ideas to do M&As in banking.
Q: With the economy looking better off, has there been a change in the corporate finance space?
A: Corporate finance, capital markets, loan syndication will grow with India growing and I am quite optimistic about that.
Q: Do you see corporates investing in creating new capacities?
A: I do think that when you have an economy that slows down, it can't kickstart immediately. The few good things for us is oil prices are down which is godsend in many respects and it is healthy as I don't see prices of oil going back to crazy highs. So, this is good for the Indian economy. The second thing I would say with the new Government the ease of doing business which they are trying to bring in, should also accelerate the turnaround time. I have full hope with the Government, also, Mr Modi has done a good job of moving around the world.
Q: Is there any sector that you are particularly bullish about?
A: Defence. We have lot of age-old stuff which needs replacement, we have been postponing it forever. Even from a geo-political point of view, we need to invest. FDI has been increasing, which is a big thing and it also creates jobs, creates manufacturing. Auto is the other sector I am bullish about. We are becoming an auto hub in many respects. Services industry can definitely be done more, but the big guys are already there, then your domestic services and new models will be big.
Q: The KPMG study shows a high growth in fee income. What could have contributed to this?
A: There was not much capital investment, your loans haven't been growing at the same rate as they should gave been growing so advisory fees on complex transactions should increase. In fact, I still feel that Indian advisory fees are much lower compared to the west. I think it will increase, as Basel 3 norms come in, as banks can't do so much long term lending, you will have to develop capital markets, you will have to develop bond markets.
We as an industry also have to move it up. Bank Of America is moving it up for sure as we don't want to do IPOs at a lower rate and then not do full justice to it. If you look at the league tables in fees size we are right up there because we pick on deals that we want to do and we play such an important role in those deals that we get a proportionally higher fee compared to other investment banks. We have moved away from the strategy of doing business for league tables alone.
Q: Can we talk about your quality of assets?
A: Our quality is 100 per cent. We almost have no entry on books. We have a robust mechanism of choosing our clients. It starts with choosing the right client set, then our idea is to grow with the client and do more and more with the same client. As you do more and more two things happen. First, your advisory fee pool goes up, second as you know the client lot more, you are able to perceive the risks lot more. Then, there is also a repeat business and then you are connecting the organisation at all levels. So, the ideal strategy is that you should be able to connect with the CEO, CFO, treasurer, the end couple of users, then it will be holistic, you will be able to envisage where the risk is. The idea should be not to get out but help them if they are getting into trouble.
Q: Can you talk to us about your risk management strategy?
A: Our risk management is global, because as we invested in the last three years of business, we wanted it to grow with the right risk framework. The idea of risk is learning about the different complexities across the world. Our risk teams are fully integrated globally and they share lot of knowledge with different parts of the globe.
Q What is the biggest risk as far as the Indian economy is concerned.
A: The biggest risk I still think is operational risk from a bank perspective. As you become more technology oriented, your security and technology risk is high, hacking is becoming a big thing. We don't have connectors in India that can prevent hacking.
Q: Where do you see Bank of America two or three years from now?
A: We see ourselves doing the same global strategy we do everywhere else in the world and we definitely want to build strong ties with our clients. We have lot more emphasis on treating the client as the prime point of doing business with and also doing the right business and increasing our advisory fee business, doing lot more with the same clients and growing the clients as they come along. We would also like to use our global franchise to bring more clients to India, which will grow the Make In India concept. It is required as our manufacturing is low, and I am sure we can spread the word and get more clients interested. India is one of the better manufacturing zones which people can think of as an alternative. Of course, the interest rates have to come down for that.