'It is (Ambanis' dispute) now at a corporate level and ought to be settled between two corporates'

Mon, Oct 26 06:58 AM

K V Kamath, chairman of ICICI Bank, thinks India is a land of opportunity and this is the time to choose the business of aspiration. In this interview with The Indian Express Editor-in-Chief Shekhar Gupta on NDTV 24x7's Walk the Talk, Kamath shares his faith in the robust Indian banking and corporate system and makes a case for a growth rate of 10 per cent

and#149;You've heard expressions like 'in the eye of the storm', or 'a near-death experience'. My guest this week is somebody who has been through all that exactly at this time last year. K V Kamath, welcome to Walk the Talk.

It was a bit like that but we were always sure of ourselves. I think the global situation was a bit unnerving and I think it is natural that people thought that the world was coming to an end. And the world doesn't come to an end that easily.

and#149;But describe the eye-of-the-storm feeling. Take us back to the Lehman Brothers' collapse, Merrill Lynch's collapse.

I think several things happened. Frankly, three things happened in sequence. You first had the commodity price correction, and before that you had the market challenge, and these two were weighing very heavily on the minds of everybody in business, whether it was corporate India, or whether it was the markets, the financial services business. I think you have to look at it in that context. It caused what I'd call a psychological challenge more than a practical problem. You had complete loss of confidence in corporate India. And it is not unusual that you will see that loss of confidence would also trickle down to the masses. I think that's what we were seeing at that point of time, but I must say that the government acted at great speed and made sure that systemic challenges need not surface. So I would give a lot of credit to the government.

and#149;How much strain were you facing in this bank because you knew your bank was in the eye of the storm as well?

For a bank you need two or three things to be in place if you are going to tide over any challenges. The first thing is: do you have adequate capital? Whichever way we looked at it, we had idle capital, we'd raised our capital, we had doubled our capital just a year ago and we had all that lying with us unutilised. So there was no challenge in terms of capital. Second thing is liquidity. We were a liquid bank, so there was no challenge in terms of liquidity per se. So I wasn't really worried about the bank per se. I was more worried about what could be the impact of manipulation because at that point of time I'd mentioned that what I feared was manipulation. Manipulation in terms of market players and so on.

and#149;But did you find any evidence of that?

We did find evidence of that which we gave to the authorities at that point of time.

and#149;But nothing came out of it?

Nothing came out of it.

and#149;Did you figure out what or who was behind it?

I think basically what we can say is players in the marketplace who would try to take advantage of any, I would say, sudden movement, were really trying to look at how to take advantage.

and#149;Did you reflect or introspect or debate internally as to why did ICICI Bank get so much attention?

I have done that and the only conclusion I have come to is, we basically set the change agenda, and when you set the change agenda, you are in the public eye. And I would think that, for that reason, we've always been in the news. So this was another opportunity to take advantage of an institution which was in the news.

and#149;But there was nothing in your practices or your methods that made you particularly vulnerable.

Not at all, because again in a banking context, what you are looking at always is capital: do you have capital, do you have liquidity and are you doing business the right way? I think if you look at the situation prior to October 2008, the whole world looked different. Consumer India was booming, corporate India was booming. In the space of 15 days, that rug was pulled out... I think it is to the credit of the institution whose foundation we had built on capital, on adequate amount of liquidity, that allowed us to see through this period.

and#149;Were there moments during these weeks last year when there was a real fear that somebody might persuade the government to do something desperate, like nationalise private banks in India?

Not at the end of the private sector, not within the bank at all. We were very clear that that was not likely to happen at all... I think anybody who looked at any of the Indian banks at that point of time would have found that they were well-capitalised. They had, I would say, depths of liquidity. Because we should remember that when the crisis unfolded, Indian banks, between SLR and CRR, had 34 per cent of deposits virtually in cash. Plus their capital. So I don't think there was a risk on that front at all.

and#149;But there was concern. I know in the government, not about ICICI Bank as such, but about the general lack of faith and trust in the market, it's like nobody wanted to believe this system is sustainable.

Frankly, if I were to look at the Finance Ministry and (then) Finance Minister P Chidambaram in particular, I think he had implicit confidence in the system and he had implicit confidence in the Indian banking system. And I think, all credit goes to him for having stabilised the situation across the financial sector in the country. Because if you remember banks were not the only ones that came under attack, a little later the mutual funds industry, and a little later the NBFCs came under even more attack. If you ask me, that was the real challenge to the system. And the way we stabilised it, I think full credit goes to the Finance Minister.

and#149;One day in October, everybody thought that some dead mutual funds were going to roll over.

Indeed, and dead mutual funds could not roll over. There was a challenge. Roll over and die — I don't think that happened at all... I think the entire credit goes to the Finance Minister for having put liquidity in their hands at that point of time... And the same goes for the NBFC sector. A few days later, it was the turn of the NBFC sector. If debt was not rolled over, there would have been serious systemic damage.

and#149;To that extent, how we managed the crisis is a success story.

I think it's a lesson that people will look at a few years later and be taught as case studies.

and#149;So did you also have to make phone calls to your big depositors to say, don't worry, your money is safe?

You talked to all your customers, whether they were depositors or whether they were your lay customers, you talked to them. And whether they were large corporates or individual customers, you talked to them. As for large customers, the directors would've talked to them, the executive directors would have talked, including myself... I think everybody was in the frontline. I think they did a marvellous job of talking and communicating with the lay customer.

and#149;So what are the big lessons learnt — at ICICI and generally for your sector?

Let me first talk about the sector and then put ICICI into the context. I think the sectoral lessons we really need to look at in a larger, global context. And in the global context, I think the first lesson that has been learnt is that you need to have significantly higher levels of capital than what banks have had so far. You need to be leveraged significantly lesser, to a lesser extent, than you are as of now. And that would mean that you carry significantly higher levels of liquidity than you are doing right now. So these to me would be the key lessons at this point of time.

and#149;Is the essence of these lessons also that you need to be a little less aggressive?

I will put aggression in a different context. I think what I am basically talking of are basic housekeeping duties that a bank should follow. Putting these into context for ICICI, I would say that all the three tests that I articulated we had met. We never expanded without having capital in place. I can go back to '96 and say the first thing that I did when we came in here — I came in May, June or July — we went and raised the GDR. Two or three years later, we raised the ADR. So capital always preceded anything else that we did.

and#149;Yet over the past year, we've seen ICICI Bank's aggression come down.

Yeah, there is a reason for change in strategy. The reason is very simple. See, we grew during a period, 2002 to 2009 or 2008, when Indian consumer came of age all of a sudden and had a lot of opportunity. There was a lot of opportunity in the banking space to serve that customer. It also coincided with the time when interest rates were moderate, where inflation was tempered down. In this sort of a period, it is possible to grow at a faster pace than usual. And we had to grow at a faster pace because the market opportunity was there. We raised capital and we met our liquidity through wholesale deposits. But we clearly saw a year ago that we needed to change our strategy. But we needed time to change our strategy. Because we did not have the branch network that was needed. So the branch network had to happen, thereafter you had to allow non-wholesale deposits to build up. That could only be done by slowing on growth. And that's a consistent strategy that we now see that Chanda (Kochhar) has executed.

and#149;So, you are not sort of retracing your steps, you are not going backwards.

Not at all. I think we had to hit the pause button to allow us to regroup, particularly on our liabilities side and consolidate it. And I think that part of it is falling in place.

and#149;So would you say one year down that the crisis is now over for the financial sector? Or do some things still remain?

I think for India it is clearly over in the sense that three or four parts of the financial sector in India have stabilised. What could have posed a challenge is if corporate India had not performed the way it has. I was never in doubt that they would perform the way they have. God forbid, if they had not performed the way they now have, that would have caused strain on the banking system, there could have been a challenge. But whether it is the banking system, or whether it is the mutual fund industry, or whether it is the insurance industry, I think all have come of age and have proved that they are strong and they can sustain.

and#149;So do you see any black swan events in the horizon as you describe them?

My view of life and the way I've done business in the last 14 years is in a way completely at the other end of the spectrum from planning in a black swan way. Because to me a black storm or a perfect storm happens over a long period of time. But in the interim are a whole host of opportunities which you cannot afford to lose. So I would rather seize those opportunities than plan for a black swan event all the time.

and#149;You just talked about that period when you said it was possible to grow because of a certain set of virtuous circumstances, one of the most virtuous being low interest rates. How come we are still missing that sweet spot?

That's something that we — the government and the policy makers — need to think very deeply about. If you today look around the world, we would probably be the country with the highest rates of interest. And we are a country which, to me, is clearly now on an 8 per cent growth track and will not take too much time to get on a 10 per cent growth track.

and#149;You don't buy the 6.5 per cent story?

Absolutely not. I do not buy that, that's history, if you ask me. What I would like to see the government do is set a growth agenda and say that all think tanks, all advisory groups work within that constraint. Absolutely, growth should be a target and it should be the job of everybody to facilitate the target that the government has set for itself. And I think that's how you encourage business.

and#149;So what's your sense of what we'll end up with on March 31, 2010?

On March 31, 2010, I think the run rate will be 9 per cent and we will complete the year between 7.5 and 8 per cent. My target is 7.5-8 per cent. And I ve never strayed from this target. This is the target that started happening in the June quarter.

and#149;We have condemned ourselves to this Hindu rate of growth, because we say at least we are growing, but now we seem to be psychologically settling to a China minus three formula which is ridiculous.

To me that is dangerous too. Because China's growth rate is going to drop. If we adopt China minus three, I think we will again go back to the Hindu rate of growth.

and#149;Give us the Kamat formula for bringing down interest rates, maintaining stability, and also keeping inflation at bay.

I would think what we need to look at is growth to start with. We want to grow at 10 per cent. I would start with that as the beginning of the equation. If you want to grow at 10 per cent, we need to make sure that corporate India and consumer India at this point of time are ready to consume. They are ready to consume from what I can see because I see both sides of the equation, my corporate customers coming back with all their growth plans, and pushing them onto the frontburner, and consumer India coming back. But let's take the case of consumer India. We would need to make sure that they could continue to get things at an affordable rate. And it is in this context that interest becomes important. As far as corporate India is concerned, we need to make sure that they are able to produce competitively because while they have gotten competitive, we cannot take it for granted. And interest rate becomes an important variable in how competent they are. So I think the case for lowering interest rates is made, if we have to grow at 10 per cent. Then if you want proof, let's look at what happened in China. Growth happened with interest rates extremely low. I think throughout the cycle China has grown in, interest rates were in the range of 6-7 per cent. And of course, in that country deposit rates were also kept extremely low. And they learnt how to manage inflation. They did have episodes of inflation every four to five years, and took heavy measures to bring down inflation in terms of squeezing out supply of capital at that point of time to bring down inflation. So I think there are well-known methodologies that have been adopted by countries.

and#149;Now, your other hat, the hat of the mediator. I remember we had a conversation at this same place almost four years ago, 2005, when you were mediating between the two Ambani brothers. Where does that situation now remain? Do you follow it?

No, I do not follow it. I think today it is at the corporate end. And I am sure as mutual corporates whatever are the issues will be resolved.

and#149;When was the last time you had a conversation with one of them?

I think more than two months back with any one of them. And that too would have been a social conversation.

and#149;What should the government do?

I think let the documentation be examined and act as per the documentation.

and#149;Because right now the entire government is blighted by this, the petroleum policy is bedevilled by this. I mean, it's a bloody mess.

I say it's in court at this point of time and probably it is clearly best judged by the courts.

and#149;Do you have any advice for the two of them, besides the gas dispute, generally?

Of course, I am fond of both of them and my advice is very simple. I think there is so much opportunity at this point of time and I think this is the time to seize the opportunities and clearly get on with business.

and#149;So as we say in our politics, the Indian voter is choosing the politics of aspiration over the politics of grievance.

Clearly, I think this is the time to choose the business of aspiration... I think India is a land of opportunity, and I think that is what we should seize.

and#149;And the sooner you move away from grievances the better.

I would think in a much larger context, that is what Indian business should do. Move on to the opportunity. The opportunity is huge. India itself is an opportunity.

and#149;Since you dealt with this problem, give us your description or understanding of the dispute: is it corporate, financial, or personal?

I would rather not comment on this. As we all know, it is being heard as you speak.

and#149;But do you think it is resolvable?

I think in life everything is resolvable and I am sure that this will also be resolved.

and#149;One thing that is not resolvable usually in life is a blood feud.

I think all feuds get resolved.

and#149;If any of the parties were to ask you again for advice, is this all you would say, or would you be willing to get involved in a more massive manner?

This would be all that I would say because I think it's truly now at a corporate level and ought to be settled between two corporates.

and#149;But it's harming everybody.

Indeed, it will harm more in terms of opportunities that are there around you, which you may or may not seize.

and#149;I hope they are listening.

My good wishes are with them and I am sure they will do very well in life, both of them.

and#149;Thank you very much and our good wishes are with you.

Thank you.

Transcript prepared by Sharika C

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