KV Kamath On Reimagining Finance In Age Of Scale, Speed & Intelligence | Jio Financial

Summary

In this interview, Mr. Kat discusses the RBI's recent regulatory changes and their implications on banks, particularly in terms of risk appetite, capital allocation, and credit growth. He highlights the shift from corporate to retail lending, the impact of global interest in India’s financial market, and the role of technology in the banking sector's evolution. Mr. Kat also shares his insights on India’s growing economy, regulatory evolution, and the future of financing and credit growth amid global uncertainties, emphasizing the long-term transformation potential of the country.

Takeaways

• 😀 RBI has introduced broad regulatory easing (capital market financing, easier lending norms, deferred ECL timelines) that opens new opportunities for banks.
• 😀 The banking asset mix has flipped post-COVID: retail now dominates while corporate loans have declined, which limited banks' participation in economy-driving corporate growth.
• 😀 Greater access to capital markets (insurance, pension, mutual funds) has allowed large corporates to bypass banks for funding, reducing banks' corporate share.
• 😀 The new RBI stance restores banks’ ability to participate more in corporate activity — including acquisition financing —creating a more level playing field.
• 😀 Acquisition financing was once restricted for historical reasons (hostile-takeover concerns); reopening it reflects a changed market context and competitive reality.
• 😀 Banks will need stronger analytical skills to underwrite acquisition and corporate loans — assessing securities, underlying asset value and risk is essential.
• 😀 There appears to be significant global private-credit interest in India; many international financial players view India as a large opportunity for private credit.
• 😀 GST rate cuts should help revive retail demand, lifting consumption and supporting credit growth — but the boost requires prudent underwriting.
• 😀 Caution is needed on unsecured retail lending: multiple open credit lines and evergreening present real risks that need guardrails and tighter risk controls.
• 😀 Overall credit quality has improved (low NPAs for large institutions), but vigilance is still required to ensure NIMs and provisioning reflect real risk.
• 😀 Fintech and modern digital competitors are pressuring banks, but legacy core platforms (30–40 years old) make competition unequal unless banks modernize.
• 😀 Big banks are spending on technology but often on legacy extensions rather than full platform modernizations; a true break from legacy systems is needed.
• 😀 If India sustains ~7% growth and prudent policy, the long transformation toward developed-country status can continue — capital markets and debt markets are maturing.
• 😀 The regulator (RBI) is viewed as consistently focused and evolutionary — regulation has historically followed economic scale and context, and current moves are appropriate.

Q & A

What recent regulatory changes has the RBI introduced and how might they affect banks?

The RBI has announced sweeping regulatory reforms, including relaxed norms for IPO financing, corporate lending, and deferred ECL timelines. These measures create a more level playing field for banks, encouraging higher risk appetite, capital allocation efficiency, and potential credit growth.

How has the structure of Indian banks’ asset portfolios changed in recent years?

Previously, more than half of banks’ assets were in corporate and infrastructure lending, but post-COVID this has shifted dramatically toward retail assets. This transition means banks may have missed opportunities in the corporate sector of a 7% growing economy.

Does Mr. Kat believe the RBI has become more growth-oriented or has relaxed its prudential standards?

He believes the RBI remains as vigilant as ever and disagrees that prudential standards have been diluted. According to him, regulation evolves appropriately with the size and maturity of the economy, reflecting a natural progression rather than leniency.

Why is RBI’s recent decision to allow acquisition financing by banks significant?

Historically, banks were restricted from financing acquisitions due to concerns about hostile takeovers. The RBI’s decision now reflects a modern market-driven context, allowing banks to engage in acquisition financing, which opens new business avenues while aligning with global financial practices.

How does Mr. Kat view corporate deleveraging and current credit demand?

He sees deleveraging as a mindset among large corporates rather than a necessity. While corporates remain cautious, global financial entities are highly interested in entering India’s private credit market, indicating strong potential credit demand.

What growth in credit does Mr. Kat expect given current economic conditions?

With India’s economy growing around 7%, he anticipates credit growth of 11–12% as a natural multiplier effect, encompassing both corporate and retail sectors, especially with measures like GST rationalization supporting retail demand.

What concerns does Mr. Kat have about retail credit growth?

He cautions that unsecured retail lending poses risks if borrowers overextend themselves for non-essential consumption. He notes that while the system remains stable, regulators and lenders must remain vigilant to prevent stress or bubble formation.

How should banks manage the risks associated with multiple unsecured credit lines?

Banks must avoid evergreening practices, where new credit lines repay older ones. The RBI has already raised risk weights to curb such risks, which has led to healthier portfolios and historically low NPA levels, below 0.5% for large institutions.

What are Mr. Kat’s views on the impact of technology and fintech competition on traditional banking?

He believes the biggest challenge for traditional banks is not underinvestment but misdirected investment in outdated systems. To compete with agile fintechs, banks must overhaul legacy platforms and fully embrace modern, scalable technologies.

How does Mr. Kat view India’s long-term economic growth outlook?

He is optimistic, seeing India as part of a long transformation journey similar to Japan and China in previous decades. With prudent management and policy focus, he believes India can sustain 7%+ growth, steering toward developed-country status by 2047.

What trends does Mr. Kat observe in India’s capital markets?

He highlights robust growth in both equity and debt markets, noting 78 IPOs raising $14 billion in a year. He sees this as a sign of maturing capital markets and a positive indicator for India’s broader financial ecosystem.