Corporates Are Investing Through Cash Accruals, Not Loans: K.V. Kamath

(MENAFN- Live Mint) "Mumbai: Veteran banker K.V. Kamath, 76, the former chief of BRICS countries' New Development bank and known primarily as chairman of National Bank for Financing Infrastructure and Development, spoke at the Mint BFSI Summit and Awards last week. Kamath touched upon a variety of topics including the growth of the Indian economy, possible challenges, the private investment cycle, recent RBI regulations and the fintech ecosystem. Edited excerpts:On the India growth storyI think we have clearly proven several things to ourselves that we could ride, first, the COVID crisis, because it now looks like it is a distant memory. But for me, it was fresh because that was probably the first event in my life, where I did not know where we would head pleasant surprise was how quickly the Indian industry bounced back, and how well the economic conditions and the whole process of stabilizing was done, both by the Centre and the Reserve Bank of India. And within six months, corporates came back, more efficient than they were. I think the hidden gain there was probably a 25% productivity bump, which yet no economist (has) talked about private investment cycleWe are used to looking at banks' numbers as proxies for what's happening on the ground investment. I think we need to move to looking at the sum of corporate fixed asset growth, plus working capital and working process growth, and that will tell us much better numbers because today, you will have not only bank borrowings, but a very strong cash accrual that is coming through corporates because they are deleveraged and profitable. That cash is not going out to repay bank loans, but to fund the business. And if you need something more, you then always have the capital market to look at... So, the reliance on banks is going down RBI's decision to curb unsecured lendingIf you look at the numbers, probably, the worries are right because you had, what one can in banking terms call 'unbridled lending and unbridled growth'. If you have a deep conversation with the credit scoring companies, they will tell you a story as to what's happening with the individual borrower. If an individual borrower is being lent at scores well below 700, which most bankers would see a threshold, and then, that borrower has three or four loans. As a banker, you figure out what's happening, there is clearly an evergreening happening there bank attrition and retaining talentAt ICICI Bank, we had to build the talent to grow our business... we did not have people to put into the branch because suddenly from 50 branches a year, we were told, you can open any number of branches. Let's say I want to open 500 branches. Where do I find 5,000 technically skilled people? We codified our training programs, gave it to NIIT (now, Coforge), and said you run it for free. We don't charge, you can charge what you charge. And when the graduate comes out, we will underwrite, to start with, 5,000 a year. Very soon, that number increased and we said, anybody can pick them from NIIT we didn't have managers. We tied up with Manipal University to do a one-year program in Manipal, in-house. We saw there were no people HR head told me:“You are wearing blinds, you are thinking of the urban people in rural India.” I thought he had a point. I gave him a very interesting challenge, said you will advertise only in vernacular press and then let us talk. Then we advertised. He had 100,000 applicants the first year, for the 1,000 slots that we had banks waking up to fintech disruptionThe regulator, having put an emphasis on technology, is really right. The problem as I see it is not necessarily investing more, but I would think the challenge for banks is renewing the technology that they have have already seen systemic challenges in a few banks because of technology which creates problems. We have seen that in the past, going very long back, to what sort of rigidity is the mainframe cost course, now everybody has forgotten what a mainframe was. But then, we were working with nimble machines, it was state-of-the-art for that time in the last six, or seven years with not only cloud but now open-source coming in, your competitors are going to be much more nimble, and you are going to be more and more stodgy I were a bank, I would say what would I do to become nimble, which would mean that large parts of my technology platforms will have to be replaced. The good news is, it can be done virtually at no cost, I repeat, at no cost today fintechs path to profitabilityAs far as the fintechs are concerned, I'm sure that at this moment, they are bringing a lot of value through innovation, let them ride the innovation. They have people who have funded them who are happy. At some point of time, there will be a profitability model that will emerge. But that would need some help from the regulator also to allow them to survive at where it is that they're not making money. For example, UPI is something that is a world beater, and we can showcase it to the world, but none of the players there are making money. I don't want to go too deep into it. But we will then analyze, how is it that you could allow them to make a reasonable return on what they have invested. I think it will be for the common good of the industry and the development of industry and so on. So we will need to analyze where and how they will need to do this. If not, I sometimes say that they could become good providers of software as service (SaaS) solutions for banks, they could course correct and provide that. They will find their way the regulator when it comes to allowing innovation and fintechsIf we look at the last three or four years, the sandbox approach that the regulator has taken is remarkable. That is what has allowed us to leapfrog in terms of the payment solutions that we have had. And that stands out as a success story for India, how we have mastered the payment solution. Based on my experience, I have not seen too many domains anywhere in the Western developed world, which would match the payment solution that we have here. And who takes credit, it is entirely the central bank for giving us the ability and the leeway to experiment with this. We could have well said that, look, we are not comfortable with this. And probably they would have been right. But they said let's try it out in the sandbox and then let us allow scale and scoping. So I think all credit to them.

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