Optimistic or cautiously optimistic, how are you looking at the present lending environment?

I’m optimistic about the credit cycle, both in terms of demand and asset quality. Consumer demand continues to remain strong, which is driving banks’ retail loan growth. The government’s focus on infrastructure capacity creation has kickstarted the capex cycle. Private capex cycle has also started in select sectors like telecoms and infrastructure, where companies are expanding their operations. Indian companies have deleveraged their balance sheet over the last few years, have surplus cash, and most of them may not be in a rush to raise additional capital. However, I expect private capex cycle will gain traction post elections next year. The quality of assets despite an uncertain macro-economic environment is another aspect which is adding to my optimism about the present lending environment.

Cost of money has gone up. In the US, it’s at a 22-year high. Will that alter the dynamics of how BofA functions in India from credit and underwriting perspective?

The underlying rate going up is a passthrough rate for banks, which typically focus on spreads. From companies’ perspective, there will be an impact in terms of higher cost of funds. Typically, around $8-9 billion of ECBs get refinanced annually, and higher rates may prompt corporates to switch to cheaper domestic credit. Alternatively, some of the companies may explore Japanese yen funding. Also, the introduction of withholding tax makes ECBs more expensive.

The ECB market has been quite muted for the past few years unlike what it used to be 7-8 years ago…

Yes, in terms of intensity and volume, the ECB market is more muted than what it used to be a few years ago. Borrowings in INR have become more competitive. Also, companies were going slow with their borrowing plans and focussing on deleveraging their balance sheets. Our house view is that, in the US, there could be one more rate hike, after which, from mid next year, we believe the Fed may start reducing rates. In India, I think, rates have peaked and there is less chance of further hikes in interest rates, subject to macroeconomic data. Hence, with corporate loan demand expected to increase post elections in mid of next year, rates will start to ease both globally and in India, and the ECB market may see an increase in demand.

When India Inc opens up, would you be in a position to write checks, including long-tenure loans?

We are always keen to lend for the right projects.

That would be the top 20 conglomerates of India…

For companies that we are comfortable with, we are ready to put our balance sheet to play. We participate in project finance, which are typically longer tenor loans. Our project finance is primarily in the sustainable space, aligned with our global strategy.

Why is that?

Green energy is a space where we want to be active.  Over the last couple of years, corporates have declared their net zero targets. They are now taking a step forward and ascribing a cost on not delivering on their targets. It is a step in the right direction as it conveys the commitment of corporates to their sustainability targets. We want to participate in this play.

This time when you take exposures, will it be different from what we saw in 2010-2012 from a regulatory perspective, given the changes since 2015?

For our clients, we are focussed on ensuring that the funds are deployed efficiently. When there’s a good deal that comes our way, GBL (Group Borrower Limits) or other regulatory limits should not be an impediment if there is credit capacity. But it’s not yet reached a point where that’s [regulatory limits] impacted our ability to do transactions.

How receptive are your borrowers to the notion of sustainability lending, despite high interest rates?

Very positive. The large corporates we work with realise that this is here to stay, and that they need to take sustainable and serious actions. For sustainability linked loans (SLLs), on an annual basis, we mandate a third-party certification to track the progress. If a borrower does not meet the requirements of SLL, then there is a penal interest we charge. This indicates seriousness. I don’t think pricing benefit is powering this trend. With a positive sentiment, a corporate will be able to attract investors who are looking to invest in companies that are conforming to certain standards. It also opens up their access to many funds that have specific pockets that are reserved for these kinds of facilities.