The government may scale down the GDP numbers for FY07 and RBI may expect a slowdown in credit. However, KV Kamath — a diehard optimist and possibly the most aggressive member of the banking community — believes that the economic growth is much higher, closer to 10% and that the funding demand from India Inc will only jump.
You have said that India’s economic growth is more than what figures show. What has changed?
I have consistently said this for quite some time. Unless the basket of industrial production is truly representative of the mix of industries today, you will not see true numbers coming out. We need to set that basket right to get an idea of what the growth rate is because ultimately you are projecting growth based on the basket that you have. In the sort of growth that you have today, you need to re-calibrate the basket at frequent intervals. Take, for example, the growth momentum from automobiles and ancillaries. This is a constantly evolving thing that would require re-rating at frequent intervals.
Would an underestimation of the economic growth mean that funding requirement is higher than what is estimated?
Let me put that in context. Two years back we saw an investment pipeline of Rs 3,00,000 crore. I would anecdotally guess that the pipeline today is upward of Rs 4,50,000 crore. If to this figure I add that the known plans of SEZs that people are talking of, the number would be up by 50%.
Plus there are the mega power projects that people are talking of. Clearly, a simple add-on will indicate that the number has now significantly increased and there is robust industrial activity that is visible today. In the last two years, a major part of the funding came from internal accruals and corporates accessing international and domestic markets for debt and equity. But as the investment pipe becomes larger, I would presume that demand for credit would rise. I guess that starting this year, we will see even major firms accessing debt locally.
Your assets have grown over 50% in ’05-06. Is this an exceptional year or do you expect this to continue?
This year in a way was an exceptional growth year when we raised capital and got our international business up and growing. Going forward, we will have to look at our growth in the context of having built our foundation and now building a superstructure that goes along with it. Last four years, the key driver for us was consumer credit. Going forward, we see a more balanced portfolio with resurgent corporate India and new horizon in rural credit and indeed consumer credit continuing to grow.
What kind of growth do you see in your international operations?
We are now seeing increasing momentum on that front as corporates are getting stronger in local operations and have become globally competitive. Growth will be in M&As and funding these needs. Corporates now believe that they understand the businesses well enough and are looking at overseas buyouts. We believe they will be able to digest them. It would be speculative to think how much it grows.
To what extent will resource be a constraint?
We have grown our deposit base fairly well given the branch constraint. What is critical is having branches in the appropriate places. I think we have mapped that quite well as we grew using technology channels. We have managed to grow deposits with limited branches and we will continue to stretch our capabilities.
Every year had some opportunity to encash value by selling some strategic holdings. Has that now been exhausted?
Not really. If you look deep there are a string of assets where we can release value over the next few years. We will do this depending on the value these have created and the need to release value.
Will you look at acquisitions for growth?
Our strategy is to grow organically. As of now, we are not actively looking for acquisition opportunities. We are conscious of the fact that our capital is limited and we have to use it in a careful and cogent manner within the opportunities that we have.
In the past you had indicated that your intention was to churn the bank’s portfolio. Have you now changed plans and decided to grow your asset book?
The opportunity to churn depends on regulatory environment and people’s assessment of the market. Securitisation was a core part of our strategy and we went about articulating the strategy taking into account our ability to originate assets and the demand in the market. What impacted last quarter was maybe certain regulations that came into force.
To me, more important was pricing uncertainties that came in because of the rate scenario. Once the rate scenario settles, and I think it will take a few more weeks for that, we will see securitisation coming to the fore because there are institutions with appetite to take paper. Our strategy is to continue to churn our portfolio.
You have said that India’s economic growth is more than what figures show. What has changed?
I have consistently said this for quite some time. Unless the basket of industrial production is truly representative of the mix of industries today, you will not see true numbers coming out. We need to set that basket right to get an idea of what the growth rate is because ultimately you are projecting growth based on the basket that you have. In the sort of growth that you have today, you need to re-calibrate the basket at frequent intervals. Take, for example, the growth momentum from automobiles and ancillaries. This is a constantly evolving thing that would require re-rating at frequent intervals.
Would an underestimation of the economic growth mean that funding requirement is higher than what is estimated?
Let me put that in context. Two years back we saw an investment pipeline of Rs 3,00,000 crore. I would anecdotally guess that the pipeline today is upward of Rs 4,50,000 crore. If to this figure I add that the known plans of SEZs that people are talking of, the number would be up by 50%.
Plus there are the mega power projects that people are talking of. Clearly, a simple add-on will indicate that the number has now significantly increased and there is robust industrial activity that is visible today. In the last two years, a major part of the funding came from internal accruals and corporates accessing international and domestic markets for debt and equity. But as the investment pipe becomes larger, I would presume that demand for credit would rise. I guess that starting this year, we will see even major firms accessing debt locally.
Your assets have grown over 50% in ’05-06. Is this an exceptional year or do you expect this to continue?
This year in a way was an exceptional growth year when we raised capital and got our international business up and growing. Going forward, we will have to look at our growth in the context of having built our foundation and now building a superstructure that goes along with it. Last four years, the key driver for us was consumer credit. Going forward, we see a more balanced portfolio with resurgent corporate India and new horizon in rural credit and indeed consumer credit continuing to grow.
What kind of growth do you see in your international operations?
We are now seeing increasing momentum on that front as corporates are getting stronger in local operations and have become globally competitive. Growth will be in M&As and funding these needs. Corporates now believe that they understand the businesses well enough and are looking at overseas buyouts. We believe they will be able to digest them. It would be speculative to think how much it grows.
To what extent will resource be a constraint?
We have grown our deposit base fairly well given the branch constraint. What is critical is having branches in the appropriate places. I think we have mapped that quite well as we grew using technology channels. We have managed to grow deposits with limited branches and we will continue to stretch our capabilities.
Every year had some opportunity to encash value by selling some strategic holdings. Has that now been exhausted?
Not really. If you look deep there are a string of assets where we can release value over the next few years. We will do this depending on the value these have created and the need to release value.
Will you look at acquisitions for growth?
Our strategy is to grow organically. As of now, we are not actively looking for acquisition opportunities. We are conscious of the fact that our capital is limited and we have to use it in a careful and cogent manner within the opportunities that we have.
In the past you had indicated that your intention was to churn the bank’s portfolio. Have you now changed plans and decided to grow your asset book?
The opportunity to churn depends on regulatory environment and people’s assessment of the market. Securitisation was a core part of our strategy and we went about articulating the strategy taking into account our ability to originate assets and the demand in the market. What impacted last quarter was maybe certain regulations that came into force.
To me, more important was pricing uncertainties that came in because of the rate scenario. Once the rate scenario settles, and I think it will take a few more weeks for that, we will see securitisation coming to the fore because there are institutions with appetite to take paper. Our strategy is to continue to churn our portfolio.
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