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Institution Builder

After using technology to transform Indian banking and steering Infosys past its biggest crisis, K.V. Kamath, former Chairman, ICICI Bank, helped multilateral lender New Development Bank scale up massively during his five-year stint
twitter-logoAnand Adhikari | Print Edition: January 10, 2021
Institution Builder
K.V. Kamath, former Chairman, ICICI Bank - Photograph by Rachit Goswami

Of the eight years that Kundapur Vaman Kamath spent at the Asian Development Bank (ADB) in the late 1980s, he was in Indonesia for four years. A fast learner, Kamath, an IIM Ahmedabad alumnus became fairly fluent in national language Bahasa Indonesia. Three decades later when he took up the chairmanship of New Development Bank (NDB) in Shanghai, the foreign language anxiety did resurface again as it meant communicating in 'Mandarin' in day-to-day conversations to survive five years in the city.

But advanced technologies in language translation relieved the language fears. "The App did a good job in seconds to convey the message," grins Kamath who also speaks Kannada and Tulu fluently. The former chairman of Infosys, who spent 13 years at ICICI Group, is a technology enthusiast. At ICICI Group, which witnessed a reverse merger of much larger developmental financial institution ICICI Ltd with the bank in 2002, he was instrumental in installing ATMs by the thousands, launching electronic trading platform, and introducing ATM on wheels among others.

Kamaths tryst with technology continued even at NDB. "We had first-hand experience and opportunity to use light and nimble stuff at NDB at a fraction of the cost of other banks and institutions," says Kamath. His elevation as NDB Chairman, set up by the BRICS nations (Brazil, Russia, India, China and South Africa), for financing infrastructure and sustainable development projects, was a career high.

In his five-year tenure at NDB, Kamath laid the foundation of the new institution and scaled up operations. By the time he left NDB in 2020, it had approved 59 infrastructure and sustainable development projects worth $18.5 billion billion across member countries.

His name often crops up as a suggestion for the new finance minister in the BJP-led NDA government. This year, Kamath was the unanimous choice for Lifetime Achievement Award by the five-member jury for his contribution over four decades to the financial system.

In Global League

At NDB - a development finance institution set up in June 2015 to mobilise resources for infrastructure and sustainable development projects in BRICS nations and emerging economies - Kamath started from scratch. "It was like a garage start-up. I was virtually employee number one and there were four vice presidents," says Kamath. But the biggest challenge was the different environment, sitting in China, working with five countries with separate priorities, contrasting cultures and distinct set of minds. He put together a core team to work towards fulfilling the mandate. "I had to learn how to deal with different cultures, different countries and diplomatic skills," says Kamath.

V. Vaidyanathan, Managing Director and CEO, IDFC First Bank , and the youngest senior management team member of Kamath at ICICI Bank, says "Kamath could spot talent, allow them to grow and reposes high level of trust."

The biggest change was the technology platform. During the mid-90s at ICICI Group, there were computer 'mainframes' driving technology and very heavy software, which they could not afford. So ICICI went for the light nimble thing. "Today, the light nimble pervades. We had first-hand experience and opportunity to use light and nimble stuff at a fraction of the cost than other banks and institutions have done in the past," says Kamath. The next step was skilling the team and aligning the goals of governments of various countries. In fact, the easiest part for Kamath was development loan process.

The bank's overall agenda was set by the BRICS leadership. In the inaugural BRICS summit in Russia, Prime Minister Narendra Modi proposed making clean energy the first major initiative of BRICS Bank. "We in a way tried to own that green sense by trying to do everything in the green context as we went along," explains Kamath. It has approved projects across renewables, transport development, environment and social infrastructure. The scaling-up was quick. Most institutions like the IMF, World Bank, ADB have grown slowly. But time was of essence for NDB. The initial capital of $10 billion was coming in seven years. "We said we should very quickly get to utilise that capital," says Kamath. In the first four years what NDB did, usually takes other banks 14-15 years. "We upped the pace significantly," he adds.

The foundation is set for supporting a larger loan book in BRICS. Going forward, the $10-billion capital can easily get the bank to do $50-60 billion in loan size. There are new hybrid instruments which can be explored. "We are probably looking at a $100-billion bank in the next four years or so," hopes Kamath.

He has encouraged raising funds in BRICS countries and lending in local currency, which is core to NDBs funding strategy. NDB is also exploring bringing in new members. Currently, founding members can dilute up to 55 per cent. If full dilution happens in the initial capital of $10 billion, the capital can go up to $18 billion. "This will give a sizeable book of $170-180 billion, which is in the range of other multilateral development banks who took 50 years to reach there. We should be able to do it in 10-12 years," says Kamath. He adds there are enough opportunities in the five countries to lend. "With interest rates at never before lows, it is great time to borrow and lend to member countries," says Kamath. The biggest plus for NDB is low interest rates for borrowings funds from the market. Clearly, Kamath has set the foundation for a fast-growing development financial institution for the emerging economies.

Institution Builder

Well before NDB, Kamath had acquired the reputation of an institution builder. It was under him at ICICI Group that ICICI Pru Life, ICICI Lombard, ICICI Securities, ICICI Prudential MF, ICICI Venture life were nurtured and scaled up. Today, all these are market leaders with some being listed. Sandeep Bakhshi, Managing Director and CEO, ICICI Bank, who worked with Kamath earlier, says his ability to identify future trends way before his peers, to inspire the team to implement new projects within very short time frame and create a whole generation of leaders for the country's financial sector made him a role model for the entire corporate India. Vaidyanathan says Kamath is a rare blend. "He is an extraordinary visionary , big hearted and a man with great grace."

Kamath has returned from NDB with lot of learning. The Indian financial system is also changing. During the 80s and 90s, development financing was for greenfield manufacturing ventures where institutions provided equity and debt capital. Banks didn't have access to long-erm funding. The cost of funding was too high due to high interest rates. Currently, project financing is mostly for infrastructure.

"There is probably scope for an appropriately conceived institution," says Kamath hinting at a DFI model. But a DFI model would certainly require clarity on the funding source and government support. In the past, DFIs like ICICI Ltd, IDBI Ltd and IDFC Ltd have all converted into banks. Kamath believes India needs large financial institutions to meet GDP target of $5- 10 trillion in 10 years. The Chinese banking system is almost twice the size of its GDP while Indian banking is far less than the GDP. "We need larger institutions for sure," believes Kamath. In fact, an RBI internal working group has recommended that large corporate and industrial houses should be allowed to set up banks.

It also recommended allowing well-run large NBFCs with asset size of Rs 50,000 crore and above, including those owned by corporate houses, to convert to banks. Kamath says given the size of some NBFCs, regulators think and believe they should not pose a systemic risk. "Ownership is secondary. The systemic risk issue is paramount in the minds of regulators," adds Kamath.

Bakhshi of ICICI Bank says Kamath left his mark not only on the ICICI Group but also on the Indian banking industry. "He revolutionised retail finance in India by making consumer loans widely available to a large section of the population. He also transformed Indian banking by introducing technology-driven solutions," says Bakhshi.

On consolidation and privatisation of public sector banks, Kamath says there is an issue of staffing these institution if necessary with outside talent. "There is internal talent, but we can also bring outsiders," says Kamath. SBI has already taken the lead in this by appointing EY India partner with specialisation in US GAAP, Charanjit Attra as its CFO. "It (solution) need not be by dilution, it can be a combination of things the government could do to get them to their rightful place in the economic system and create value," says Kamath.

On Bad Bank, he says much of the cleanup has already been done. "The required capital has been pumped in. The clean-up is substantially done," says Kamath.

Digital Super Cycle

Kamath is gung-ho on technologies transforming delivery of financial products.

"Fintech is passive. We will probably need to use the word digital super cycle," says Kamath. Banks and financial institutions are already transforming to reap the gains of digital super cycle. "As an observer, I look at people who were not in the line becoming dominant players. Take e-trading platforms for example. We have seen how quickly people have built scale. Tomorrow other financial services business will face the same situation," says Kamath. PayTM, Google, PhonePe and WhatsApp are spreading their wings. There are platforms selling multiple bank and insurance products under one roof.

Kamath says fintech players will move to rural areas seamlessly. "The bank will also move to rural India, but they need to rethink a lot of things," says Kamath. Existing players have to rethink technology, re-imagine the business model or the servicing model and do things now as you face competition from newer players. "I think existing financial sector players will have regulatory cover for some time, but cannot bank on this for all times," he adds.

Kamath believes India will also see its digital super cycle starting to spin in 2021/22. "It has already started to spin. You have enough anecdotal evidence," says Kamath. There is a rise in digital transactions and e-commerce while consumers behavioural and mindset are changing. "You will have a new growth engine for 2021/22 which will drive 8-10 per cent GDP growth," believes Kamath.

Always a learner, an optimist and go-getter, Kamath still has the same desire to learn as before. The five years in China with NDB exposed him to the transformation possible in a large economy like India. During his ADB days, he witnessed the transformation of Asian tigers. Now this Padma Bhushan winner sees a big opportunity for BRICS. In fact, he has come convinced that $5 trillion and $10 trillion GDP in 10 years is a distinct possibility if we do things right.

"I am back from NDB better educated with a multi-dimensional view from five countries and what is possible in our country," says Kamath. Surely, the government will use his services in the near future.

@anandadhikari

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