M umbai: K.V. Kamath, chairman of ICICI Bank Ltd and chairman designate of Infosys Ltd, said India’s largest private lender is transforming from a pioneer to a growth leader. In an interview, he said innovation will not stop at the bank but there won’t be aggressive and frequent product launches. Instead, the bank will do business differently. He also said interest rates have nearly peaked and “there is no real slowdown”. Edited excerpts:
In April 2009 when you stepped down as the MD and CEO of ICICI Bank, you had said that you would spend your time learning liberal arts, watching Formula 1 car racing and playing with your grandchildren. One fine morning we heard that you would take over as chairman of Infosys Ltd.
Infosys is a great company and I expect that the time I have to spend there is just about a little over a month in a year. I can adjust that time without compromising on my other priorities.
Do you see a synergy between banking and technology?
I think the common ground really is governance because you are looking at board and governance processes and not running a company per se. Infosys has a great team to run the company. I would be concentrating on the board processes and that’s the common ground for a whole lot of businesses.
You are the guru of retail banking in India. We are sure that Infosys will exploit that expertise.
Not really. Infosys is a very strong player in financial services vertical not only in terms of outstanding products but also in terms of what they do with a wide range of banks around the world. They already have a deep-rooted knowledge of financial services business. It would not be right for me to say that I would bring in value there. Probably my background in ICICI Bank will play a role but it will not redefine anything that we do.
How genuine are the fears of slowdown?
One should look at different components of growth—the counted growth and the uncounted growth. The unaccounted growth in our economy is probably 11-12% if you acknowledge that GDP is growing at 8-8.5%… There is an uncounted part of growth because measures that we have actually to record growth don’t seem to be accurate and of course nobody denies the fact that there is an unaccounted part of the economy.
Signs of optimism: K.V. Kamath says there is no real slowdown. Abhijit Bhatlekar/Mint
You add all these and you are actually sailing past 10%. The question is: Are we doing enough to make sure that this growth is sustained? We have the momentum and it is very difficult to roll it back. All we have to make sure is that the atmosphere is not disturbed.
Is the environment ideal for growth?
The services side of the business is growing at a rapid pace and I don’t see a slowdown. Rural India is not slowing down. Manufacturing India is not slowing down either and, in fact, manufacturing India is in a position that you have never been before. It’s substantially deleveraged. A large part of its growth happens through organic generation of cash and it is to a great extent away from the licence raj of the past. It can create capacity. It’s all going very well.
I have worry on two fronts. One is the infrastructure to support this sort of a growth and the mood. You will see mood swings. I would think that there was initially worries about whether there will be road blocks for certain parts of infrastructure …Also mood in terms of general atmosphere, the government stand on corruption how is this playing out...I see a mood change that is starting to happen.
Change for the worse?
For the better. There is a consensus now building that this quarter’s numbers will look good. Everybody was talking about negativity in terms of overall activities, slowdown, etc while there is no real slowdown.
You don’t see any threat to growth.
I was worried for about a period of last three months but now I see the mood lifting. What is required is some signalling that interest rates have peaked and some assessment that inflation seems to be at least now getting out of a runaway situation.
What is your take on inflation?
I think it will remain high in the next three to six months… The way I look at inflation is that we are a high growth economy and we are in a transformational stage. Look at other countries which have gone through this stage—their inflation remained high for large cycles of growth and we are facing the same situation.
So the high-growth, high-inflation combination is okay. It’s okay for the time being, given the fact that we have inflation led by variety of factors which are not in our control and which may not be sensitive to interest rates. The Reserve Bank has done the right thing so far in signalling the rate increases and its preparedness to act as and when necessary…
Do you get a feeling that the interest rates have peaked?
I will think they are almost at the peak. One more hike is possible …
What are the challenges before the banking system?
Banks have a very interesting situation. You will see banking assets growing at 20-25%. The growth will happen at a pace that we would not have seen in the past.
Even you have not seen it?
Even I have not seen. Maybe we were outliers, but I am talking of systemic growth of 20- 25% which means doubling assets every four years. The first challenge the banks have is to understand that this growth is an opportunity and prepare for that. Are we prepared in terms of capital, people, products, product delivery and the processes that we need to put in place for running this sort of a growth? Banks are gearing up for this kind of a growth.
A migration has been made by many banks from being just working capital lenders to also doing corporate finance, growing their SME (small and medium enterprises) books and building a retail portfolio. Are we in a position to handle the risk that come out from this business will be the challenge.
What are the challenges before ICICI bank?
I think the most competent person to comment on this is Chanda (Kochhar, current MD and CEO of the bank). ICICI bank has made a very interesting transition. If we go back to the genesis of ICICI Bank, its merger with the financial institution in 2002, we took on a whole lot of challenges. There was no regulatory forbearance on reserve requirements and so we had to raise money. That distorted our Casa (current and savings accounts) ratio. We saw opportunity and we grew.
There was a particular paradigm at that point of time which we thought there was opportunity and we geared ourselves for that. But at some point in time we have to get the Casa ratio right and only way you could have gotten it right is to actually slow down. I think the post events of 2008 gave us opportunity to pause, virtually to put a break on growth… Chanda has scripted this micro story brilliantly well.
Is talent a big issue?
There is talent across the industry. I look for talent at the grassroots. Is your recruitment process right? Is the process of identifying merit right? Is the process of giving opportunity to people right? That’s a continuous process we do every quarter in ICICI Bank and even at the board level we have seized on this.
Human resources will be a little bit of challenge in the industry as we go along because today’s business is different from the business of last 10 years. But I guess again most banks are seized of this and they are taking steps to train people and get the skill set.
Some observers call your banking cowboy banking. You were very aggressive in growth and the bank is paying for it.
I have been called cowboy from 1996… People who were questioning our growth path saying we wanted to move away from the development bank. So at every step, in every move that we did, labels were attached. I am not really bothered with the label. We believe what is right for the company we did in the context of opportunity that this country provided and created the platform for the future for this company.
By and large every bank in India has in a way tried to emulate what ICICI Bank did in terms of diversification of products and building products. There could certainly have been difference in the pace because we believed in seizing leadership by keeping a pace which is faster than others. Our real challenge was in 2002 when we merged and to make it successful whatever we did. In the period of 2002-07, we were competitive using our strategy but as we went into 2008 and several events unfolded, we need to take course correction and get the Casa ratio right and build up that base before we start lending. What Chanda did was absolutely appropriate and executed very well.
Had you remained in your executive position, would you have done the same thing?
It is a difficult call… Had the environment remained the same would I have done the same thing? Probably, I would have. If the environment would have been different, the timing would have been different. There was a particular environment that gave great opportunity and a right call was taken by the new leadership.
In retrospect, do you think perhaps you were a little more aggressive?
Yes, if I were to look back, I would have done the same thing based on the date available at that point of time. Without hindsight I would have done the same what I did… You never know... Hindsight is post facto.
What’s the next phase for the bank?
The next phase for the bank is Chanda to drive. I think she has articulated her vision very clearly where she wants to be in five years and we will all celebrate that growth.
You always spoke about growth, the scale, the Chinese model in terms of assets and market cap but never spoke about quality of assets or returns. Were you in some sense obsessed with scale?
That’s not right at all. I think growth and scale followed opportunity and that doesn’t mean that you do not look at asset quality as you go along. Indeed, you diversify into certain businesses and if you are a pioneer, it is likely that you will hit a bump and I think indeed we have hit bumps in several businesses.
You need to make allowances for certain challenges that will arise as a pioneer and I think these are part of the equation. The care that we took was to make sure that we had adequate capital as a buffer all along. We made sure that capital was adequate, technology was in place, and leadership was in place.
Today there are three Chinese banks among the top 10 in the world. My belief is in the next 10 years you will have three or more Indian banks among the top 20 in the world.
One thing your bank has not been able to manage is public perception, despite having Amitabh Bachchan and Shah Rukh Khan as brand ambassadors.
When we looked at outside endorsement there was a context…We needed to build a connect with people and leverage certain bank connotations… As far as perception is concerned, if you are a pioneer there are uncertainties attached around you. Hopefully, we are not a pioneer any more and I would think that time to go from being pioneer to being a growth leader is before us. That’s a path that leadership is now charting.
Does this mean innovation has stopped in ICICI Bank?
No, innovation has not stopped. What has happened is there is now a foundation of pioneering effort that we have put in and maybe others have put in. Ten or 15 years back, there were no efforts and everything you took was the first step. Today there is a wide base on which you can build. So you don’t need to be taking the sort of steps you did 15 years back
Which means there won’t be any differentiator between ICICI Bank and others?
There is going to be a differentiator in terms of the way you do business or let’s say evolution of technology. How would the technology be harnessed would be the differentiator. But will there be 10 new products that will come in like they did in 2002? don’t think so. That’s my perception for the banking system but let’s see if things work out differently.
What do you want Infosys to do?
I don’t want to step into a role of what should rightly be the role of the executive management. Both ICICI Bank and Infosys are great companies which have run very well. I think every management of every company in India needs to understand at this point is that you need to be fully aware that the context is changing, the environment is changing, the opportunity is changing. New competitors are emerging and are we positioning ourselves right to meet these challenges as we go along. That’s the key challenge before every company in India.
Finally, your vision for Indian economy.
There are so many naysayers but I make this statement that everything is in place to sustain the growth.
Corporates are deleveraged, healthy and have learnt to invest through organic means rather than borrow and leverage themselves and grow.
Infrastructure, despite its problems, is falling in place and will fall in place; transformation of urban centre is happening. I would say heightened awareness of the need to develop rural areas and attention is being given. I have reason to be optimistic and I think that this 10%-plus growth is there for the next 15-20 years.
This is an edited transcript of an interview that was first telecast on Bloomberg UTV on Thursday.