The Hindu Business Line : `Retail lending is sustainable' — Mr K. V. Kamath, MD and CEO, ICICI Bank

Perhaps, Mr Kundapur Vaman Kamath, Managing Director and Chief Executive Officer, ICICI Bank, is the only banker in the country to sport a tricolour pin on the lapel of his navy blue suit. In an interview to Business Line in his rather ornate office on the 10th floor of ICICI Towers at the Bandra-Kurla Complex, the 56-year old mechanical engineer with an MBA from IIM Ahmedabad was more than upbeat about the Indian economy. He reckons that the growth and GDP figures, one of the highest registered in recent times, are being understated by at least 1 per cent as many events are not being captured.

Excerpts from an interview:

What is the feeling today in the banking system?

After four years of struggle, we are finally comfortable. The economy was struggling, banks and institutions were having a host of problems. Now there has been resolution and Indian industry has cleaned up its manufacturing processes. Working capital has dropped by 40 per cent; interest rates have come down by 50 per cent, making the industry resurgent and globally competitive. This means better clients for banks. India has one of the cleanest banking systems among the developed and developing nations.

Is it only retail credit that is picking up?

Just now it looks like it is primarily pick-up in retail credit at 40-50 per cent but the demand created by this will have to be supplied by the manufacturing side. These companies will also start exporting. The boom will also be seen in infrastructure.

Traditionally, one would expect consumer demand to pick up with the housing loan boom. Why is that not to be seen?

There is always a tight constraint on capital on a new homeowner. A 25-30 per cent jump in consumer credit will come in the next two-three years; the momentum will come as disposable incomes rise. Right now we see that after buying a house, the borrower buys the cheapest furniture.

Could interest rates or inflation upset the nascent boom?

If price stability is upset with increasing inflation or interest rates going haywire, then the situation will be disrupted. In India, theoretically, there is really no reason for interest rates to go up for the next three years since banks are surplus in funds. If there is a huge demand, rates could go up but I do not see so many investment plans that are ready to start tomorrow.

It is said banks are bleeding playing the retail game. Your take...

There are people getting hurt today and they say that the business is not sustainable. Earlier, this was experienced in project finance. I beg to disagree, but retail lending is a sustainable proposition if you do your homework.

Will global banks make their way into India and make smaller Indian banks disappear in the process?

I would have expected them by now but the question now is when. It is a four-year haul for anyone who comes in, it has taken us four years to build and we executed with speed.

To be honest, the challenge is going to be enormous with regard to capital, especially for smaller banks. Anybody who can build scale will succeed; otherwise, competitive pressures are going to get very serious. The customer is today demanding convenience, through technology, and technology needs scale to be cost-effective.

Do you see ICICI Bank as a target for takeovers by foreign players now that Government has permitted FDI up to 74 per cent?

For another three-four years, given what we have done, we should be able to hold ourselves. The equity issue in April should strengthen ICICI's competitive position.

Actually, I would have expected a charge much earlier and my life would not have been so easy. What happens is until you get scale, your intermediation costs are very high.

Your strategy seems to be to rush out and get the numbers and later jettison the unprofitable customers. Is this a sustainable strategy and aren't you driving the common man away from your bank?

No, we are not trying to drive away customers and customers have not gone away. The message is very simple: For any bank to survive it has to make money from the customer.

The problem in India is that the customer's deposit size is so small. You have to spend X amount of money to service the transaction needs of the customer and the balance that he keeps with you is so small that it doesn't cover your operating costs. `User pay' will become applicable across banking.

There is a perception that women are on top at ICICI Bank; is that also strategy?

No, it's not part of strategy (laughs). Strategy is meritocracy and that is why women are on top. We have 5 per cent women on our executive board, which is perhaps the highest in any organisation globally.

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