- What would K.V. Kamath do if he ran a bank today?
- Can #India's private sector push green transisition?
Niraj Shah and Tamanna Inamdar speak to NABFID's K V Kamath in an exclusive interview on 'Budget 2024'. #NDTVProfitLive
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- Can #India's private sector push green transisition?
Niraj Shah and Tamanna Inamdar speak to NABFID's K V Kamath in an exclusive interview on 'Budget 2024'. #NDTVProfitLive
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
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TVTranscript
00:00 The right person to speak to on India's Infra push and much more.
00:03 Mr. K.V.
00:04 Kamath, thank you so much for speaking with us today on NDTV Profit.
00:08 Thank you, Namona.
00:09 Great, great to have you here on the show.
00:11 Let me begin first by getting your take on what we saw you presented in the interim budget
00:17 from the point of view of a position of let's keep tight on the fiscal deficit while spending
00:25 wisely.
00:26 The capex has come down in terms of quantum and pace but still significant on a higher
00:31 base.
00:32 Do you think that's setting us up for the next leg of growth?
00:35 Indeed, I think one needs to compliment the Honorable Finance Minister on charting a path
00:41 forward while at the same time keeping deficit under control.
00:47 And it's a remarkable tightening of the deficit that we are seeing.
00:51 So it's again in that context remarkable balancing act.
00:54 And I think the government will deliver on this.
01:00 In terms of the Infra push, that's been the big story in India over the last couple of
01:04 years.
01:05 It's been fueling the economy, the markets as well, of course as a secondary idea.
01:10 Do you think that a reduction of capex and if we want to go below 4.5% on fiscal deficit
01:16 and FY26 brings in a bit of constraint?
01:20 I think we need to look at it in context.
01:23 There will be certain areas of infrastructure which may not need the government to invest
01:29 going forward.
01:30 You will see more of private sector investment happening.
01:32 Take for example the entire green side of power.
01:36 That's where the private sector is firing on all cylinders, whether it is solar or green
01:40 energy, hydrogen and so on.
01:43 It's all driven by private sector primarily.
01:46 There are government players of course.
01:47 But there is no budgetary support coming up.
01:49 At the other end, almost everything that's happening in the telecommunications sector
01:53 is happening at the private end.
01:57 Ports are also happening at the private end, whether airports, seaports and so on.
02:02 So large pieces of infrastructure which earlier needed hand-holding by the government are
02:07 now getting in a way to be done by the private sector.
02:11 Or where it's done by the government, take the case of highways.
02:16 It's being financed through either cash that NHI is throwing up through its SPVs or through
02:23 the inuits that they have created and are now what I would call a perpetual cycle engine.
02:29 They can fund for a long, long, long time without access to budgetary support.
02:35 So a large part of expenditure which otherwise conventionally we took as coming out of the
02:39 budget is now being financed.
02:41 So what remains as I say, for example, the rail sector, for some time it will have to
02:47 come out of central.
02:49 But otherwise most funding, it will roll on to the next 25 years, will be funded by the
02:56 cash that is thrown up or by the private sector.
02:59 Just one comment from you on the growth targets that we have.
03:02 We're expected to grow a tad over 7% at a time when the rest of the world is recovering,
03:08 yes, but at a much slower pace.
03:10 You also have a sort of a goal to turn into a developed nation by 2047.
03:17 Just your comments on these two points and whether we are well on track at the current
03:21 pace of growth.
03:22 Yeah, I certainly think that we are well on track.
03:25 In fact, I would believe that we probably will grow a little higher than 7%.
03:30 Time will tell.
03:31 But I'll say why I believe we'll grow higher than 7%.
03:35 The reason is that the full benefits of the digital economy, I believe, have not been
03:39 factored into the 7% number.
03:41 The 7% assumes the current level of digital contribution from the digital economy.
03:47 My view is looking at other economies.
03:50 Digital, in the next four to five years, should add another 20-25% to the growth rate that
03:57 you already have.
03:58 So if I take 7 as the base case, then you have another 25% to that.
04:03 So you're talking of probably somewhere 8.5% to 9% that we will be pleasantly surprised
04:09 when we add the digital piece to the core growth that we are seeing.
04:13 Okay.
04:14 Let me come to one big talking point right now and it's what's happening with India's
04:18 private banks.
04:20 We are in result seasons.
04:23 We're speaking with a lot of bankers and one constant refrain is slower deposit growth,
04:29 higher cost of funds.
04:31 If you were running a private bank today with all the vast experience you've had, what would
04:36 be your strategy and what do you think the issue is?
04:38 See, there is one more element which nobody is mentioning and that is the cost.
04:46 I would concentrate on cost.
04:48 Cost of funds you mean?
04:49 No, cost of operation.
04:50 Oh, okay.
04:51 So I would say that if my cost to income ratio is nearing 40% or around 40%, plus, minus,
04:58 what does it take to bring it down to 20%?
05:00 With technology that is available today, I would say that that's my target, the next
05:05 target and then nobody will worry about nymphs dropping by five basis points or 10 basis
05:10 points.
05:11 It's going to be not material.
05:13 So to me, the big item that is on the table which banks I'm sure will grab in as they
05:20 go along is the cost to income ratio and bring it down so that they remain competitive, get
05:26 the yields that they want and get the returns that they want on equity.
05:31 Having said that, as of today, ROEs of banks are at a level which in my career I have not
05:35 seen.
05:36 See, there are whole clutch of banks where ROE is above 15%.
05:40 So these were aspirational ROEs.
05:43 We used to work with 12 and a half percent was good for a bank.
05:46 So I would think that there are a lot of good things that are happening.
05:50 ROA for example, again, lot of clutch of banks above 1.75 ROA.
05:57 So to me, there is a whole lot of positives and then you've got this big ticket item where
06:02 you can cut costs in terms of using current technology, the operating cost for your bank.
06:07 It could do well.
06:09 In terms of deposit growth, yes, it is moderated and this I think needs to be factored into
06:15 the base case that it's not going to suddenly reverse as we go along because there are other
06:20 instruments that have come up, particularly through the capital market side, which your
06:25 current customers will use, particularly the corporate customers.
06:29 So probably it's a given that your key customers for a bank are going to be the retail customers
06:37 that you have with the newer products, newer ways to deliver them and so on.
06:41 So that's where I think you will see growth happening.
06:45 And of course, nobody is going to go away from banks entirely.
06:48 But there will be now a healthy balance between growth in bank deposits and growth in savings
06:53 that come through the capital market.
06:56 So example, mutual funds or the like.
07:00 So to understand this in another way, can we say that savers are now preferring to put
07:08 in more of their buckets into their SIP, you're seeing fantastic SIP figures, or into the
07:13 capital markets instead of letting it languish in a savings account or even a fixed deposit?
07:17 And this is a reality that banks will have to live with.
07:20 Absolutely.
07:21 And that is happening.
07:22 So the fundamental, whatever the saver has got, he is now putting it into a SIP.
07:27 Virtually automatically every month, it goes into the SIP that he has got.
07:31 Now, what sort of a saver is putting this money?
07:33 I think everybody down up to, let's say, the middle of the pyramid or slightly below that.
07:38 But my assessment is that it is not going to be long before the person below that level,
07:46 probably towards the bottom of the pyramid, who today has only financial savings that
07:50 he has, or savings account in a bank, is also going to move money into a mutual fund.
07:56 May not be entirely, he'll keep a base level for operating and other expenses.
08:00 But he's going to move.
08:03 Everybody will understand that this is the easiest way to save for the long term.
08:07 And if a 250 rupee SIP is going to be a reality soon, then I think you can see what will happen
08:13 to those accounts which are at, I would say, below the, very near the bottom of the pyramid.
08:21 I think those also will move.
08:23 So you will have a very competitive and healthy space in terms of the saver seeking better
08:28 returns and longer term savings.
08:30 And at the other end, the banks being places where they have trust and they'll keep their
08:35 money for transactional needs and so on.
08:38 So let me come back to that point.
08:41 Safe to say it's a tough time for bankers.
08:43 Your corporate borrowers may not need you as much.
08:46 Balance sheets are healthier.
08:49 Your depositors also have better options going forward.
08:53 Your cost of funds seem to be increasing as well.
08:57 Let me rephrase that question.
08:58 What would be your strategy right now if you were running a large bank?
09:01 I would say that the key growth area for me would be retail.
09:05 Because that customer is still with me.
09:07 I've got the customer's deposit account.
09:10 So I know the customer.
09:11 I have to serve him better.
09:13 I can sell him a variety of products.
09:15 I will earn fees to doing that.
09:17 And I will, for the corporate, working capital, topping up needs, I will provide.
09:22 So there is a large opportunity out there.
09:25 But my mix of income will change.
09:27 It will not necessarily be driven by NIMS alone.
09:30 The mix of income has to be driven by fees also.
09:33 Because I have a deposit, I have a franchise, the deposit franchise, covering a large number
09:39 of customers.
09:40 I need to see how I could serve it better.
09:43 And in all this, my key is going to be technology.
09:47 Because it will then also enable me to take out costs.
09:49 That's how I keep the bank buoyant and ready for the future.
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13:45 I'm not asking you to make a specific comment on any bank,
13:52 but recently, because you talked about NIMS,
13:54 this was the big talk in the markets.
13:56 And one particular very large private bank
13:59 got punished quite severely by banking analysts
14:01 in the stock market.
14:03 There were concerns.
14:04 Was it an overreaction?
14:06 See, I don't want to comment on any bank.
14:08 But if I were to look at any particular bank
14:11 and see whether it has been punished
14:14 or whatever the market does, I would look at,
14:18 is there anything fundamentally wrong which you need to punish?
14:21 I don't see anything fundamentally wrong.
14:23 So I think a lot of things are probably not
14:27 understood by the analysts in terms of--
14:30 or people who then decided to--
14:34 because there's nothing fundamentally
14:35 wrong with any bank in India, as I see.
14:39 I want to speak a bit about a lot of RBI action
14:41 recently going on for the last few months.
14:44 It started with a curtailment of smaller loan takers,
14:48 small ticket loans.
14:49 You saw that pan out.
14:51 Then there was action on AIF investments for banks.
14:55 And very recently, an action on a fintech player,
14:58 which some in the industry are saying
15:01 is a punch in the gut for the fintech space.
15:06 Do you think the RBI is coming down heavy?
15:09 Again, I don't want to talk about any specific case
15:13 or events which are specific, nor of regulatory action.
15:17 But I want to talk about it maybe at--
15:20 slightly from a distance, as it were.
15:23 See, I've been in a regulated environment most of my career,
15:29 at least since I assumed leadership roles in a bank.
15:36 The regulator in India, to me, has laid out things
15:40 very clearly.
15:41 And it is for you to follow what has been put down
15:46 and operate within the guardrails
15:47 that have been laid out.
15:50 Now, this is necessary because ultimately, the regulator
15:54 is overseeing the health of the system and the saver's money.
15:58 So anything that is then out of line,
16:02 action needs to be taken.
16:04 So I would see regulatory action that
16:06 is taken in the last six months or whatever,
16:09 consistent with that policy.
16:10 And the key is the trust that the saver has imposed
16:16 in the regulator, and consequent to which he has put money
16:19 into an institution.
16:21 That trust has to be looked after.
16:24 And I think this is what drives all regulatory action.
16:29 And I think they are absolutely correct to take steps
16:33 to make sure that that trust in the system remains strong.
16:37 OK, so broadly, yes, of course, the regulator
16:39 needs to do its jobs.
16:41 Regulated entities need to walk the line.
16:43 But specifically on what's happening in fintech right now,
16:47 they're facing a lot of challenges
16:49 in terms of where they stand in the larger ecosystem.
16:53 How would you look at that?
16:54 Yeah, this is now an issue for the last two or three years.
16:57 When I started looking at the growth in fintechs
17:01 and what they have brought to the table,
17:04 I need to compliment them for what they have achieved.
17:08 And what is it that they have achieved?
17:09 They basically brought a set of platforms
17:15 which make transactions, a variety of things,
17:19 of any type of loan, for example,
17:21 much easier than what the banks did over time.
17:25 So these young startups in the span of two, three years
17:28 have built up platforms which the country can be proud of,
17:31 they can be proud of.
17:33 The challenge is that they have not figured out
17:36 how you evaluate value that you have created in the platform.
17:41 How do you create into a revenue model?
17:44 That's where the challenge is.
17:46 Now, there again, you can't do that by stepping out of line.
17:50 So you have to be in sync in doing--
17:52 Do you think there has been a tendency to step out of line?
17:57 I don't want to comment that anybody has stepped out
17:59 of line.
18:00 But there are times you can see things being done.
18:04 You work with somebody, you try to do a few things, and so on.
18:09 So I think the regulator has to be then aware all the time
18:12 as to what is happening and bring it
18:14 within the guardrails.
18:15 And that's what has been happening.
18:17 Again, this is going on for the last two years or so.
18:21 So almost with every instrument, you've seen that happening.
18:25 The new instrument is created, and then the regulator gently,
18:29 sometimes maybe not so gently, brings you
18:31 within the guardrails, and you operate
18:33 within those guardrails.
18:35 So I would think that this is par for any new technology that
18:39 is coming in, and new experimentation that's coming.
18:42 But you cannot take away the fact
18:46 that these entities have brought a lot of value to the table
18:49 in terms of what they've created.
18:51 But they now need to see how they can take it forward
18:55 in terms of value to people who have put money in them
19:00 and to themselves.
19:02 Last comment from you, Mr. Kamath,
19:04 on the future path for the BFSI and the banking space in India.
19:10 Do you think it's going to be largely tech-driven?
19:14 And how can that be used for greater financial inclusion
19:17 at the end of the day?
19:18 I think there is no doubt in my mind
19:20 it is going to be tech-driven.
19:22 It is going to be a complete sea change from what
19:25 we have seen earlier.
19:26 We're already seeing it.
19:27 The last two years, if you look at it,
19:30 for example, in the banking context alone,
19:32 the entire payment space is taken over by new technology.
19:37 Of course, banks are now using that technology,
19:39 but who developed it?
19:40 Third parties basically developed it.
19:42 As a result, we can proudly say that India
19:44 has got its own payment platform, which
19:46 can stack up with the best in the world
19:48 and probably is the leading payment platform in the world.
19:53 UPI.
19:53 You're talking about UPI.
19:54 The entire-- I would say the rails on which UPI is run
19:58 can compete with the best in the world.
19:59 It is a globally scalable model.
20:01 It can be used for global settlements with some tweaking.
20:04 So there is a whole lot of good that has come out of--
20:07 so to me, that's going to drive our things.
20:11 Thereafter, with almost your entire population
20:15 of the saving age or the working age now on a device
20:20 and able to access data and accounts online,
20:25 that is your target set.
20:26 That's a new target set.
20:27 It wasn't just a few years back.
20:30 And 10, 15 years back, I remember
20:31 we gave up on reaching rural India
20:33 because we said technology is not permitted there.
20:35 But today, you come to a situation where
20:38 that becomes a given.
20:40 So I would say the conditions to operate in a technology context
20:45 are already present.
20:46 And it is for us, the financial system, to make that happen.
20:50 Now, that important point that you raised
20:53 about the bottom of the pyramid.
20:55 The bottom of the pyramid today has the same access
20:58 to technology as you and me.
21:00 Their aspiration is to have the device
21:02 that we have in our pockets with a slate at one end,
21:05 basically a device where they can not only talk,
21:10 but they can see and proceed and transact.
21:14 Now it's for us as financial sector players
21:17 to put an app there, a very simple app there, which
21:20 gives them control of two or three things.
21:22 Basically, you need only your deposits,
21:25 your savings through SIP, your SIP type of savings.
21:29 And if you have loans, you aggregate all your liabilities
21:34 at one space.
21:34 This is all you require.
21:36 And then you are in control of your life.
21:38 Again, I repeat, five, seven years back, 70% or 80% of India
21:43 was not able to do this.
21:44 Today they are able to do this.
21:45 So I don't know whether you heard
21:47 of this app called MF Central.
21:49 The bank has an app.
21:50 MF Central is something that SEBI has now
21:53 worked with camps and the two registrars,
21:55 KFIN, to bring out.
21:57 Where at the touch of a button, it's
21:59 an app, two minutes to download or less than that.
22:02 And basically, a four-digit PIN, and you are into it.
22:05 You get all your mutual fund at one go.
22:10 And you can see that number.
22:11 Now, imagine the value this has for the person
22:13 at the bottom of the pyramid.
22:14 Now he knows.
22:16 Like I have a bank app where I can
22:17 see what's in my bank account.
22:19 I have this app, which tells me what
22:22 I have in my mutual fund account if I have started
22:24 saving through the mutual fund.
22:25 And indeed, he has seen others saving
22:28 through this instrument called SIP.
22:30 So there is an aspiration that, why don't I
22:32 also save for the long term?
22:34 And this will accumulate and grow.
22:36 So I would think that technology is a game changer in terms
22:39 of reaching the bottom of the pyramid
22:41 and enabling him or her to manage current needs
22:47 and saving needs for the real long term
22:50 through the simplest of financial products.
22:52 And I think we are pioneers in this.
22:53 I don't see anywhere in the world that this has been done.
22:56 So we have already got a lead with many other--
23:01 all other-- most other countries in the world.
23:04 And I'm sure this will only progress.
23:06 Fantastic.
23:06 Thank you so much, Mr. Kamath, for speaking with us today.
23:09 Thank you.
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