After a short stint at JP Morgan, where she was vice-chairman, Kaku Nakhate has returned to Bank of America Merrill Lynch as president & country head. Nakhate, who has more than two decades of experience in equity capital markets, tells Shobhana Subramanian that with BankAm now looking at India as a key focus area, there are plans to take on more risk in the Indian market. Excerpts:
How do you see the business model of Bank of America Merrill Lynch evolving in the next couple of years?
There is a move to a universal banking model worldwide and we would be inclined to go that way without compromising on any risk or regulatory requirements. The integration with Merrill Lynch is now behind us and it has given us a range of products. Our focus just now would be to increase product penetration because we have relationships in the banking, investment banking and the securities businesses. We would be looking to grow the business in India, especially the corporate banking business where we plan to take on more risk. Our corporate loan is not as small as is generally believed and we would like to double that in three to four years. We also have to take into account regulatory changes taking place both in the USA and in India as we decided which areas we want to be in.
So it will remain primarily a fee-based model?
The model will continue to be dominated by fee-based businesses but we can?t neglect the fund-based piece because we have to add value to clients. But the revenue mix could change in favour of fund-based businesses. Right now, the business that we call global capital markets is the biggest contributor to our profits, we clearly have strengths globally. Also, we could offer more services as and when there are new opportunities, for instance, when the corporate bond market develops. There may be some gaps that we need to will. A retail business is not really on the cards just now though we do have a few branches. We haven?t applied to RBI for branch licences just yet because we?re waiting for their guidelines. Right now our focus will be on wholesale banking. In the broking space, too, we will continue to cater to institutions and high net worth individuals and retail broking is not really a priority for us right now given that we don?t do it anywhere in Asia.
Unlike Citibank or some other foreign banks, Bank of America doesn?t seem to have thought of India as a focus area…
Well, they certainly didn?t for 10 years, that?s for sure. But that has changed dramatically following the merger with Merrill Lynch and it?s a broader change. Within Asia, India is a key growth market and there?s a focus on four major economies but today, as a combined firm, we?re further ahead in India than in China. Within India, obviously whether or not you?re a retail player will determine which segments you?re in. Frankly, at this stage, there?s no reason why we would really require access to retail deposits to ensure liquidity for Bank of America in India. We think the regulators also need to think about the role of foreign banks in India but that would be in the context of redefining the segmentation in the marketplace. The system needs to open up in many directions in order to give India the sort of financial services that it needs.
Will Bank of America have the necessary liquidity to grow the loan book?
You have to remember that a lot of our balance sheet might be offshore, in dollars and not necessarily in rupees only. And when it comes to dollars, Bank of America has a bigger deposit base than anyone else. So that?s not a constraint for the business and that?s why we?re talking of recalibrating risk. The Bharti loan, that we disbursed for example, is a dollar loan. We also have strong relationships with MNCs in India and we manage their money transition and so have access to rupee funding through them. So the absence of retail funding won?t constrain us, Also, we?ve seen that all over the world, retail banking is a national business, people like banking with their own country?s banks. Even in Australia which has been open to foreign banks in the early eighties, 84-85% of the retail deposits are with Australian banks. Globalisation of banks is very much in the wholesale space. We?re seeing some change and the best example is Santander in the UK, through acquisitions. In 10 years time, the private, public and foreign banks segmentation in India would have evolved to a different plane. Maybe that would mean there are opportunities for BankAm to be in the retail deposit gathering business. But, it?s too early to judge.