Banc of America Securities India Pvt Ltd (BASIL) may keep its balance sheet growth plan on hold, pending the finalisation of the post-merger strategy of DSP Merrill Lynch with Bank of America (BoA). It will continue to deploy available capital in fixed-income securities.
BASIL has operational overlaps with Merrill Lynch’s Indian non-bank finance company, DSP Merrill Lynch Capital (DSPMLC), which has a larger franchise. BASIL’s management has indicated that the fixed-income operations could be consolidated under one entity.
Until the post-merger strategy is finalised, BASIL does not intend to grow its balance sheet.
While all of BASIL’s assets carry market risk, its policy of keeping the duration of its investment portfolio at moderate levels (1.7 years as at the end of December 2008) limits potential marked-to-market losses.
Fitch Ratings has affirmed BASIL’s national short-term rating at ‘F1+(ind)’. Simultaneously, the agency has affirmed the national short-term rating of its Rs 200-crore short-term debt programme at ‘F1+(ind)’.
The ratings affirmation is based on the expected support from its ultimate parent, Bank of America NA, which owns 100 per cent of BASIL through its subsidiaries.
Bank of America NA’s ratings were downgraded in January 2009 to ‘A+’ from ‘AA-’ after the merger of Bank of America Corporation (BAC) and Merrill Lynch & Co, Inc (ML).
Further deterioration in BANA’s financial flexibility and any regulatory stance or event which implies a lower level of continued support from BANA could potentially affect BASIL’s ratings.
Given the small size of operations, BASIL’s current capital (Rs 290 crore in December 2008) — which is the largest source of funding — provides enough cushion to absorb any trading losses it incurs in the normal course of operations, such as those surfacing from rising interest rates.
BASIL’s short-term liquidity is adequate, based on the liquid nature of its highly-rated debt investments. In addition, the company has sufficient bank lines from BANA (India branch) amounting to Rs 1,500 crore, most of which remains unutilised.
