Shankar Subramaniam, Head, India Corporate Banking, Bank of America, explains why fresh capex will be a combination of borrowing and internal accruals. He aspires to originate 10-15 per cent of the loan book from green loans. Edited excerpts from an interview:


With the elections behind us and the expectations of policy continuity post government formation, do you expect a pick-up in capex and investments?

Over the past decade, on the back of a clear majority for Bharatiya Janata Party (BJP), the government’s policies had a clear preference for capex. We have seen subsidies curtailed from 18.2 per cent of government expenditure to 8.6 per cent, and a step-up in capex from 14 per cent to 30 per cent of government expenditure during this period. This indicates a preference for supply-led economic growth as against demand stimulus. With Prime Minister Narendra Modi reiterating policy continuity in his post-election address, we see scope for continued capex momentum.

India’s economic fundamentals remain robust. Capacity utilisation is currently at 70-75 per cent, which makes me optimistic that corporates will start building capacities, which will provide fresh impetus to the capex cycle, given that consumer demand in most sectors seems to be resilient despite the higher inflation. Large Indian corporates have strong balance sheets and, hence, may not necessarily borrow funds for investments. Fresh investments in building capacities will happen through a combination of borrowings and internal accruals.


Has Bank of America set a loan-book growth target this year, given that macros have become favourable?

While we have not set a specific target for loan book growth, India continues to be a priority market for our bank and is an integral part of our global strategy.

We are looking to participate in corporate banking transactions more actively. There is a positive sentiment around India, and we want to use this opportunity to grow our balance sheet responsibly in this market.


Have spreads become more favourable?

That is yet to happen. Pre-election the deal volumes were low and, as a result, every bank wanted to participate in every deal that was available and pricing was constrained. 

The higher rates prevailing in the market and the differential rates in the bond and loan markets (for clients who can access the market) also inhibit the ability to increase spreads. We expect the spreads to improve as deal volumes increase.


Have prices bottomed out?

We are not at the bottom yet, but definitely close to it. 

The global bond markets’ and emerging markets’ spreads are at a historic low. The probability of spreads going up from here is higher than the probability of further corrections. 

There are no fresh triggers for a further fall in spreads. We are probably reaching a sustainable level and expect to see a few basis points increase.


Will you be open to engaging with smaller players for advances?

The MNC portfolio has been a key growth driver for our corporate banking franchise over the years, and we have been consistently adding more names to our client list. We are also looking to expand the coverage of India-headquartered clients. We have reduced the onboarding threshold to a certain extent, which will allow us to engage with emerging corporates that have demonstrated strong performance over the last few years. We have started adding several local corporates as our clients since June last year.


Are you open to project finance?

We are certainly open to project finance in the sustainable space in India and our team is evaluating a number of proposals. 

We completed one re-financing transaction in 2023 in the renewable energy sector. 

Currently, we are evaluating three to four more transactions in this space.


To what extent do you want to expand Bank of America’s green portfolio in India?

Globally we have a $1.5-trillion sustainable finance goal aligned to addressing the United Nation’s Sustainable Development Goals (SDGs). 

Our multi-year financing commitment provides financial capital, along with significant intellectual capital, to develop solutions to climate change and other environmental challenges. It focuses on low-carbon energy, energy efficiency, and sustainable transportation, in addition to addressing areas like water conservation, land use, and waste management. 

The India franchise is aligned to our global commitment and will contribute to our global target. I will be happy if 10-15 per cent of our India corporate banking portfolio is focused on the green space.


Has the external commercial borrowing (ECB) market rebounded?

Only on a selective basis and as a diversification option. Currently, INR funding is cheaper than swapped cost levels, hence there is no benefit for corporates to tap the ECB market. 

Indian corporates do not really need diversification at this juncture as they have not been borrowing heavily in the INR market.

Among our clients, only a few NBFCs [non-banking financial companies] are exploring ECBs