BankAm eyes local sticky assets, may set up ARC

MUMBAI: Bank of America plans to foray into the business of purchasing distressed assets from commercial banks in India.

The bank, which considers this business to be a large revenue generator, may even explore the option of setting up an asset reconstruction company (ARC), depending on how the first set of deals come through, said Vishwavir Ahuja, the bank’s managing director and chief executive officer.

Mr Ahuja said that there is increased interest among players in the financial system to enter the asset reconstruction space in India as many state-owned banks are facing the issue of large quantum of non-performing loans (NPLs).

Bank of America is currently evaluating few deals and would look at purchasing bad assets either through the auction route or via direct buyouts. The bank has already embarked on the recruitment mode for this business. The typical size of portfolios that BankAm looks to take over would begin from $15-20m, Mr Ahuja added.

It had earlier participated in the auction of ICICI Bank’s NPA portfolios, which were later bought by Standard Chartered Bank. As such, within Asia, BankAm is active in the asset reconstruction business in China and Hong Kong.
Meanwhile, BankAm has recorded an 80% increase in its net profit, which grew to Rs 144.6 crore for the year ended March 31, ’06, from Rs 80.5 crore a year ago.

While the bank’s net interest income rose by 60% to Rs 398.9 crore (Rs 248.3 crore), the non-interest component grew by 85% to Rs 219.5 crore (Rs 118.7 crore).

Mr Ahuja said the rise in non-interest income came on the back of services such as risk management and hedging services, capital raising and forex management. The bank’s capital adequacy ratio for the financial year stood at 23.4% as against 30.1% in FY05.

The erosion in CAR occurred on account of an overall increase in risk-weighted assets and a higher market risk charge on its derivatives business. Last year, the bank had infused up to $175m into its Indian operations.

The bank’s capital base as of now is strong enough to take care of sustaining growth of its domestic businesses for the next two-three years, Mr Ahuja said.

BankAm may look at adding few more branches to its existing network by setting up base in some tier-I locations. The bank’s primary dealer subsidiary Bank of America Securities India reported a 70% rise in its net profit to Rs 7.1 crore from Rs 2.8 crore in the previous year.