Banks will need to reckon with one-year money as savers preferred overall tenure: KV Kamath

"We have a new avenue for the saver to put his money and then it goes into the capital market, either as a debt instrument or as equity. Now if it is equity, then it probably will go to sustain the corporate growth. So, there is a large pool of liabilities coming in. Now, in what form and shape it will go into where there is need, will be determined by the marketplace," says KV Kamath, Former Chief, New Development Bank & Chairperson, NaBFID.

India needs capital. While new sources of additional capital and new instruments would get created, a large part of the growth for banks will still come from their liability franchise and we have seen that right now, credit growth is way higher than deposit growth. Even deposit growth is not evenly distributed. Big banks are getting 15% plus, but small banks are nowhere close to getting deposit growth which is close to their credit growth. There is a big imbalance so to speak in this system.
This will get levelled out. We need to also factor in that the saver that is you and me and the general public are also looking at other instruments to save. So along with the insurance and pension industry, the mutual fund industry is also very important as it is growing at a faster rate than the banking sector.

So we have a new avenue for the saver to put his money and then it goes into the capital market, either as a debt instrument or as equity. Now if it is equity, then it probably will go to sustain the corporate growth. So, there is a large pool of liabilities coming in. Now, in what form and shape it will go into where there is need, will be determined by the marketplace.

Indeed, banks could see the sort of challenges that you are saying and a long-term adjustment is taking place. It is not a structural deformation or any challenge of that sort. I would think it is a change that is taking place in terms of the deployment. We have banks and mutual funds growing at a faster pace and we have got pension and insurance businesses. All these in their own way will provide funding to the market place where there is demand.

But do you think in the Budget, changes need to be done to attract more small savers back into fixed deposits? Right now, there is a limit to how much the tax exemption would be there on interest income from fixed deposits. Do you think these softer aspects need to be revisited to mobilise savings back into fixed deposits?
My view is there is a strong growth happening in CASA. So, we know where money is being put in and the saver is clear that if it is longer term money, he will save through other sources and that is why the mutual fund industry is growing at a faster pace than banks. Where longer term money or higher savings come in a systematic manner, people are preferring to save through that route. So I would guess that banks will need to reckon with one-year money as their preferred overall tenure. I am sure the finance ministry will keep that in mind when setting policy.

KV Kamath in early 2000 incubated a lot of businesses when he was with ICICI Bank and I would say that he incubated those businesses with the startup mindset -- insurance, credit card, branch expansion. Where would you see some of the high growth pockets or high growth businesses within the financial sector for this decade?
To me, the most exciting and the highest growth will be as we go down the bottom of the pyramid, that is from servicing the top, which will be the big ticket items, as you go down and today banks can serve that customer digitally, I would think that a well-managed credit expansion to the bottom of the pyramid is probably the next biggest opportunity.

The same goes into agriculture. I would think that this is where we need to take credit. On the other hand, there is another interesting opportunity that is happening. We could also take the same model, literally money on tap after proper due diligence and after proper assessment to the vast MSME sector and the self-employed sector.

So there is a range of products that could be done. There are interesting things happening. Some people are going straight to the village level and doing this. Some are doing it at the larger towns or larger village level. So a plethora of initiatives are being taken. But the underlying in all these is a strong technology drive and the fact that we have today affordability on technology. The device is something that the user can afford. Data is something that he can afford makes this possible.

If I look at the next five years, the winners would be those including the digitech companies who can harness this opportunity and go down further from where they are today. Now, this could be done by themselves or in partnership between the fintech firms and the financial sector players, That could be a win-win for both parties or both sides of the equation.

So barring some external shocks which could be geopolitical in nature or because of energy and high inflation, this decade belongs to India and you are quite certain and confident about it?
Yes, I am absolutely certain about it and the test was the last three years. If we could not have managed ourselves doing those last three years of enormous distress and could not have reset our minds and pumped in technology into what we are doing, I would not have had confidence to say this. But having done all those things, I can confidently say that the next 10 years are ours to win and we will win in those 10 years.

Your new role is technology dominated, where you would be incubating and scaling up some of the ideas which you discussed. Are you excited, are you confident about accepting a challenge because this is pretty much like starting a new innings similar to let us say what you started 20 years ago with ICICI Bank?
There is one difference. At that point in time, technology was not available. We did not know what worked and what would not work. There were so many unknowns. So we were really gazing into the future. Creating something exciting in the fintech business, digitech business, the banking business is going to be an exciting proposition for any banker in India.