Bank of America tries to get Ambani's business

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Mukesh Ambani
Mumbai, Apr 13: Bank of America (BofA) India officials have recently been in discussion mode with the Reserve Bank of India to seek clarification if they can do business with Reliance Industries.

"In India, BofA functions through branch offices, and Mr Ambani has been appointed as a director on the board of the bank's global holding company. So, technically, there is no problem, but RBI has to spell this out," said the legal head of a large local bank.

Previously, on such occasions Indian banking regulator have often gone by the stern interpretations of law. So it seems natural that the MNC bank would not want regulatory issues to stand at a later date. 

Foreign banks have business relationships at multiple levels with large companies based in India. They provide rupee loans through Indian branches, offshore offices of foreign banks give loans that are considered as external commercial borrowings by a company in India.

These banks also fund cross-border acquisitions taken by Indian businesses, by employing their local offices, in the country where the acquisition is done. Some of these MNC banks, the derivative transactions with their Indian clients constitute a part of their treasury operations.

A master circular of the Reserve Bank of India (RBI) gives a list of the dos and don'ts.

The banks are also advised, not to engage in a complex derivative deal with a company having a common director. Only forwards and other plain vanilla currency and money market transactions which are cash-settled, derivatives involving an extended credit period are not allowed.

One of the senior official from a foreign bank stated that (foreign) banks have advisory boards in India which is not a statutory board. Therefore, the board of a foreign bank which would refer to the parent bank's board is beyond RBI's jurisdiction.

Many foreign banks use their offices outside India to lend to Indian corporates and the central bank's rules on exposure to single company or a group doesn't apply in such case.

It is natural that all the major banks in the world will want a piece of the biggest company in India. This should make little difference if it can't borrow from one US bank. Although BofA India will not like losing the RIL's business to other lenders.

Meanwhile there are a lot of media reports that Mukesh Ambani has received shares of Bank of America, the value of these shares was close to Rs 11 lakh, as part of his annual retainer fees. Ambani was the first Indian to join the board of the banking major.

While all media were stating that this information was retrieved when Bank of America informed the US market regulator SEC that it has allotted 1835 Bank of America shares, worth over $24,500, we were not able to find such a filing. The media reports also stated that RIL and BoA were not responding to their call.

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