As economy grows, Indian banks will have to expand dramatically: Kamath

The Indian economy, which is expected to become an $8 trillion economy in the next 5 to 6 years, will need very large banks, and the size of existing ones will have to expand dramatically, said K V Kamath in an interaction with CNBC TV18.

 

“You will need an economy which goes from $4 trillion to $8 trillion. I look at ourselves as an $8 trillion economy in the next five to six years. You will need very large banks. The size of banks that we have today will have to expand dramatically,” Kamath said.

 

Indian banks have a healthy return on equity (ROE) rate of 15 to 20 per cent, which is sufficient for the sector to grow and meet the capital requirements to ‘bulk up’.

 

Kamath said, “But I see Indian banks running a 15 per cent to 20 per cent ROE. That is good enough to grow at a healthy rate and meet the size of bulking up. Because every three and a half years they will virtually double.”

 

He also noted that business leaders will grow their institutions either organically or through mergers when the time is appropriate, without needing to drive growth towards becoming world-sized banks with support from policymakers.

 

Further, Kamath believes growth in the capital market will outpace other financial instruments over the next few years. Banks will continue to function as deposit-taking institutions catering to the retail sector, while non-banking financial companies (NBFCs) and fintech firms will focus on adopting technology at a faster pace than banks.

 

“Banks will have to catch up. It is good for everyone because there will be more competition,” Kamath said.

 

When asked about the need to privatise public sector banks (PSBs), Kamath questioned the rationale, stating that PSBs running an ROE of 15 to 20 per cent should be given more freedom instead of being privatised.