Bank of America can continue to lend to RIL

Bank of America, one of the largest banks in the US, can continue to lend to Reliance Industries (RIL), the largest Indian conglomerate in terms of market capitalisation, according to sources in the Reserve Bank of India (RBI).

Following RIL Chairman Mukesh Ambani’s induction on the Bank of America board, there were issues whether the US banking behemoth, which operates in India through branches, could lend to RIL. According to the Banking Regulation Act, a bank cannot lend to a company whose promoter is on its board.

Since Ambani was an independent director and not a member of the bank’s local management committee, the US lender can continue to lend to RIL, sources said.

According to laws, if a bank inducts a member into its board, it cannot grant fresh loans to the company, which the board member represents. Existing term loan facilities would continue till the contract expires, but the bank needs to stop working capital loans immediately, once an individual becomes a board member of the bank. Last month, Ambani became the first non-American on the board of one of the largest financial institutions of the world. Ambani would serve on the board’s compensation-and-benefits committee and the credit committee. The bank has sought shareholders’ approval for Ambani’s appointment in its upcoming annual general meeting on May 11.

Bank of America had informed the US market regulator that it had allotted 1,835 shares, worth over $24,500 (about Rs 11 lakh), to Ambani as a “portion of the annual retainer” payment to its directors.

Ambani may get a total of over Rs 1 crore of annual compensation in cash and stocks, going by the bank’s director compensation policy. However, Bank of America has not disclosed its specific director fees for Ambani. As chairman and managing director of RIL, Ambani was paid Rs 15 crore for the financial year ended 31 March, 2010.