What is the future of banking in an era of uncertainty? For veteran banker K.V. Kamath, the future is all about leveraging technology in the right manner. “We're entering a very different territory defined by technology and our country's ability to leverage that technology,” K.V. Kamath, Chairperson, National Bank for Financing Infrastructure and Development, said on Friday at Business Today’s Banking & Economy Summit and the BT-KPMG Best Bank Awards in Mumbai.
He added that the change that’s taking place in India is happening on the foundation of affordability. “Affordability is key. All you have to do is look at the new India. I get fascinated by YouTube content creators. The algorithm is pushing you to rural India where content creators have have more subscribers and views than urban India. And people who come from a village with lesser resources are making over a million dollars. I couldn't have imagined that 5 years back,” he added.
The future, more often than not, is shaped by the learnings from the past. Taking cue from last year, Kamath said that it was a learning curve for the government, leaders and central banks. Conventional wisdom, he added, was that if you had inflation, you adjusted interest rates but the whole of last year, the west didn't do that. “You had inflation in double digits and interest rates were nominal, just 2-3 per cent in some countries. This whole concept of inflation and interest rates will probably go under re-examination,” he said.
“The new economic theory is being written where inflation and interest rates don't necessarily go hand in hand. There's no need to do any trade-offs at all," he added.
He said that the way the government handled it was “perfect”. “Central government resisted the temptation to raise interest rates, addressed what could be challenges to inflation and it helped everyone. Interest rates being low in India in the past meant corporate world benefitting now it means that consumer credit is keeping pace with corporate lending,” he added.
For Kamath, India is finally getting all these equations right. “In India, we did the right thing by keeping interest rates under control. Going further, I strongly believe we have 25 years as a horizon, we have a runway very long,” he said. “We're the cleanest shirt amongst all the dirty shirts.”
He opined that there are a host of reasons India is one of the better performers. “One is that we have the opportunity to grow,” he said. The second, he said that India has clean balance sheets both in corporate and banking. “Our debt-to-equity ratio has improved. The ground conditions for growth have matured. In corporate India, there’s hardly any debt, and the impact of digital on Indian economy is unparalleled. In a lot of technologies, we will leapfrog like we’ve leapfrogged in terms of clean economy,” he said.
He added that his estimate was that when Covid hit, the expectations of the book that would come to restructure was around Rs 9 lakh crore assets that will come for restructuring from corporate India. “All that has come was Rs 45 thousand crores for restructuring and I can certainly say if the interest rates hadn't been held where they were held, and containment measures that was taken by the country were not effective, we would not have been in this situation.” he added.
He also said that in terms of India’s financial system, he doesn’t see a threat from China. “Threat in the competitive context should have been to our manufacturing but again appropriate policies have been taken by the government. Generally, there's trade balance which is in favour of China but we have been managing our overall trade balance that it should not be impacting us,” he said.
There have been key learnings from Europe too for Kamath. “One is that the fear of sanctions could also be turned to advantage. In Russia when sanctions were imposed, the world expected it to go down but that didn't happen. Then, again, there’s an example of payments system and their hegemony,” he said.
Kamath said that India has virtually created new systems and revolutionised the banking system with UPI. “We have done virtually a new system with UPI after the rest of the world came together saying that we need a parallel payment system,” he said. “We're de-risking ourselves significantly. There will be newer systems coming up to supplement older systems.”
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