KV Kamath says booming capital markets could eat away at bank deposit growth

A: I would think there are two probably pointers we need to look at whether in a global context, there is a cutting excise going on, you saw that accelerates our own ability to cut and second where is inflation heading. I think by and large inflation has been under control, even the Reserve Bank has been saying that it is only certain elements, particularly I think, green items, which are causing some increase in food inflation. So, if these two are in sync, then I am sure we could see a lowering of interest rates towards the latter part of the calendar year.

A: I think the challenges that you said, I think are systemic, since that shift in deposit growth, to a lower trajectory, I think is something that will happen in any market, when you have the capital market starting to show acceleration. In India, a capital market is showing acceleration, because a long-term saving mode in a way has been kicked in, for example, through insurance, pensions and so on. In addition, newer products, like infrastructure investment trust (InvITs) and real estate investment trusts (REITs), which can also tap the lay saver's money are coming into the marketplace.

And to add to that the lay saver also now sees investing into equity type instruments, were a part of his deployment, a viable route. So all these will continue because this is a systemic shift driven by a better understanding of the markets, technology that is available for you to deal with these products in a real time basis. So I would think that banks will have to learn to live with probably a lower deposit growth. I don't want to put a number than what they have been used to in the past.

In the past, we used to say, bank deposits will grow at least at 1.5 to 1.6 times the GDP growth maybe 1.7 times. I think that may not be exactly show in the future.

A: It is probably the new normal, we will see how it goes.

A: Right thing that the regulator has done is allowed experimentation in terms of technology. So the sandbox approach that the regulator has taken to allow sandboxes to be run for various things. And those various things were actually developed by not the banks, but by other adjunct institutions, whether it was the NPCI or we will now see things developed by NBFC as DigiTech form, and so on. So all these will then determine what's the nature of the institution, which will thrive in the future, and which I am sure the regulator will look at.

I don't think it's going to be issue of - we want to just give another licence or we want to allow fintechs to come in, or we want to allow large houses to come in, that's not going to be the driver for this, at least from my perspective.

A: Given the growth prospects of India, and the sizes of things, you need a much larger financial sector, including banks. Let me put that in context. If you go back 25 years or you go back even further in time you go to 30 years, if you look at the rise of Japan post their growth and we had by mid 80s 90s, if you look at the five global largest banks, Japanese. The 2005 largest were Chinese. Yes. So logically in the 2020s as we go towards the end of this decade, who should be the five largest banks, to me the writing is very clear. I will put it as who should be the five largest financial sector players, probably will be from India, it will be a few banks.

But there will be other type of institutions also, depending on regulation and how the regular wants to do. But without that the economy won't grow, the other two that I said were transformational economies and they had to leverage banks to do this. So I am sure we will have an interesting scenario in India.

A: I look at it as there is no good or bad, regulator’s worry or concern should be addressed. Now, one worry that regulators have had is, will there be connected lending? If that is a worry, my belief is today, there is enough technology to take care of that. You can put a constraint that there will be no lending. So there could be various ways in which you could look at this. And I am sure the regulator will look at it in the right context.

A: Let me know step back, year back and look at that sector. And clearly, what they have developed is world class in terms of technology and technology solutions, digital is world class. Their voices were raised to allow them access to funding, to raise money to become NBFCs, to take deposits and so on, those were are not allowed. Now, you see today, what is happening? Today is an equally loud noise about the quality of assets. So if I am a banker so who is right, in this case, I think the regulator is absolutely right, to say let us understand. Regulator is not saying all of them have not done well. But he's saying let us watch and let us calibrate. And that is why the risk weight increased, the risk weight increased, asset then went and landed with a bank, it's a double whammy. So there is a risk weight increase.

So as a I would say caution, and pulling you back from what you would have otherwise done. So without passing any overall comments on quality of assets today, because I honestly don't know, what the regulatory action has shown me is caution. So till that caution, in a way that concern is addressed to the satisfaction of the regulator, the regulator is not going to allow this. So they will say that we have the banks, we have learned how to manage risk there properly and they are probably doing a good job. So let us stay with that. I think the ball has suddenly come to the court of the new players to convince the regulator that your concerns we can take care of. I think the ball has to be handled properly.