The view outside the chairman and MD’s cabins at ICICI Bank is the same — a carefully manicured rooftop garden. But Kundapur Vaman Kamath, who moved into the non-executive chairman’s cabin a year ago, says he now looks at the greenery outside from “a different perspective”. That means he is reluctant to talk about any specifics regarding India’s largest private sector bank. In an interview with Shyamal Majumdar, Kamath talks about why policy makers shouldn’t prescribe a medicine so strong that it can derail the possibility of a 10 per cent-plus economic growth. Edited excerpts:
How do you see the euro zone problem?
The problem is simple: If you live beyond your means, you are inviting trouble. Greece was the first. I am sure there will be other countries as well. Certain Soviet bloc countries may also get into trouble. Many blame the euro and say life was much simpler and convenient under their own currencies. That’s a lame excuse. I am, however, sure that the rich countries in the zone will try to put curbs to bring the situation under control.
Do you see any significant impact on India Inc?
It’s a lesson for us, but the impact will be limited. That zone is not a significant engagement partner for us. But we have to live with this uncertainty for some time and keep it at the back of our minds while drawing future strategies. That’s because the containment of the euro zone problem is sometime away.
The inflationary pressures, particularly the surge in commodity prices, must be a big worry?
Frankly, it’s a peculiar situation. We are in a situation where industrial growth is very strong. I have three categories in mind — accounted growth, growth which we are not accounting for and unaccounted growth. If you add up all three, we are into a nice double-digit growth — at this point of time it is around 12 per cent. Normally, we take only one component of growth. But I have not yet seen any analysis of what suddenly caused this almost double-digit inflation, given the fact that the forecast just six months ago was that it would only be half of that.
What level of inflation are you comfortable with?
My gut feeling is that 6-7 per cent would be a comfortable number. Our main challenge is how to manage the 3 per cent deflation of inflation. But before that, we need a little more understanding of the situation and articulation of that understanding.
What is peculiar about the current situation?
It’s interesting that there are no perceptible big bubbles this time. In the past, you saw the property bubble building up. It’s true real estate prices have gone up sharply now, but is there a visible bubble? I don’t know, but we definitely need more analysis before reaching a conclusion. Also, demand seems to be robust, and so does supply. We need to figure out where the imbalance is coming from.
Why did the the government and RBI go wrong on inflation projections?
The policy makers were right when they said inflation was moderating at 5.5-6 per cent since all signals that time were pointing in that direction. Let me repeat: The situation today is something we haven’t seen before. Inflation at this rate is typically driven by an easy money policy. This time around, liquidity is still generous despite the mopping up exercise.
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Are policy makers behind the curve?
It’s good that they are behind the curve. The growth that we are seeing now should not be derailed, particularly employment growth, because of the momentum that it has given to financial inclusiveness. So whatever we do should be only a gentle pruning. Nothing should be done that would impair the ability of generating the fruit itself. I would be happy if we start hitting 10 per cent growth before giving stronger medicines. Who wants to go back to the 6.5 per cent growth days? If you look back a year, most manufacturing industries were operating at 65-70 per cent capacity; and the spectre of unemployment was looming large.
Is a 10 per cent growth feasible soon?
We can hit some potholes as we go along, but in the long run, we will become winners. From Japan to China — all countries that have gone through a development paradigm have seen 20-25 years of economic transition/development, and a large part of this was in double digits. We are in the fourth/fifth year of reaching closer to double-digit growth. Looking at all the underpinnings, I see a 10 per cent-plus growth for a long period. The banking sector will grow at twice that rate, with some outliers.
Are corporate investments back on track?
We are going through an interesting phase. Companies are flush with funds now and are meeting 60-65 per cent of their capacity expansion costs through their own cash accruals. The balance is equity and only a small portion is through debt. For example, cement capacity has doubled in the last few years without any large bank funding. Same is case with telecom, cars, motorcycle, building inputs etc. They have doubled their capacities in the last five years without coming to banks. It’s a new situation which we are coming to grips with. You see growth, but not through borrowings from institutions.
These are the signs of a double-digit growth economy. The purchasing power of middle-class India is tremendous despite the danger of inflation. What this has led to is that industry after industry is creating enormous capacity on their own. It’s amazing that Nokia’s largest cell phone plant is in India, and we have all along been thinking that we are not competitive enough! We will see several industries building huge scale.
So where is the bank money going?
Greenfield infrastructure projects, mainly. There is a fairly robust pipeline and a robust funding pattern by lenders in ports, power and roads.
What are views on the proposal to have a super regulator?
We should not do anything that does not strengthen the existing institutions. In any case, I am not sure whether that’s (super regulator) the right approach after we seeing the 2008 crisis. What we perhaps need is greater coordination and plugging of gaps.
How long can banks hold rates?
At this point in time, there isn’t any scope to increase rates. If the policy is behind the curve, banks will also stay behind the curve.
ICICI Bank is now termed an Indian-owned foreign bank. Aren’t you upset?
In our mind, we are an Indian institution. We have raised capital as an Indian company under the existing laws with due approval from every agency concerned. Honestly, I don’t think there is a difference between what we were doing and what we are doing now. This is an issue that will have to be resolved by ministries and regulators.
It’s been exactly a year since you took over as the chairman. What course correction would you suggest?
Chanda’s (Chanda Kochhar, MD & CEO) leadership has been exceptional. The bank has a clear game plan. We seized the opportunity to set the liability structure right and cast the growth strategy. Our CASA is almost 42 per cent now and that sets the growth platform.
Didn’t you find the transition — from an MD to a non-executive chairman — difficult?
It was actually much easier than what I had thought. I went on a six-week leave soon after retiring from the MD’s job and spent time with my daughter abroad. That helped enormously to detach myself. I have followed what my mentor, Narayan Vaghul, did with me when I became MD. He detached himself and gave the MD the full powers to run the bank. I have done exactly the same.