Mumbai: Financial technology (fintech) companies are currently riding the innovation wave, but profitability will at some point become a concern, when the regulator may have to intervene, veteran banker K.V. Kamath said at the 16th edition of the annual Mint BFSI Summit and Awards.
Kamath, a former chief of the New Development Bank of Brics countries, was in conversation with Mint editor-in-chief Ravi Krishnan in Mumbai. The day-long summit and awards event was attended by leaders of banks, non-banking financial companies and fintechs.
“Fintechs are bringing a lot of value through innovation. Let them ride the innovation wave—people who have funded them are happy. At some point, a profitability model will emerge, but that would need some help from the regulator,” Kamath, who is chairman of the board of directors of Jio Financial Services, said.
Elaborating on the kind of help fintechs would need, Kamath cited the example of the payments sector—especially the Unified Payments Interface (UPI) framework.
“None of the UPI players are making money,” Kamath said.
There might be a way for these players to make a reasonable return on what they have invested. Kamath emphasized that UPI had emerged as a force of good, in part because of the regulator’s support. He added that the Indian economy had proven to be resilient despite multiple crises, and that there is a good reason for India to be optimistic.
Balance sheets of banks, once burdened by bad loans, have become cleaner and stronger. He emphasized that private-sector firms have been using cash flows for expansion, and that it was important to look beyond banks’ loan growth to gauge capital expenditure by them.
“We have been used to looking at banks’ numbers as proxies for the on-ground investment. I think we need to move very quickly to looking at the sum of our corporate fixed asset growth. That will tell us much better numbers," Kamath said. Corporates rely not on banks but on internal accruals for growth. The shortening of implementation timelines from 5 years earlier to 1.5 years now is helping them complete projects in shorter periods.
Meanwhile, Kamath observed that India was long overdue for a ratings upgrade.
“To me, [sovereign rating upgrade] is long overdue. We shouldn’t have B, we should have at least A. I don’t think it’s too far—we’ve already climbed up the way we have in GDP, where we are in a whole lot of other things. It will be very difficult for people to deny us that,” he said.
