“In my 55 years in business, I have not seen the RBI take its eye off the ball. Every five years, I have seen an evolution in how they look at what they need to do in the context of the economy,” he said.
Speaking to CNBC-TV18 from the sidelines of the Global Fintech Fest 2025, Kamath also welcomed the RBI’s move to allow acquisition financing by banks, which was earlier restricted. “That has now been set right in the current context where everything goes through the marketplace,” he said, calling it “an excellent avenue of business for banks.”
“I look at it on a very broad frame,” Kamath said, noting that banks’ focus has shifted from corporate and infrastructure loans toward retail assets, especially after the pandemic. “In a 7% economy, the key driver is going to be your corporate side,” he added, pointing out that banks had been missing out on corporate lending opportunities.
Kamath said the new rules will help banks rebalance their portfolios. He noted that large corporates now have greater access to capital markets through growing sectors such as pensions, insurance, and mutual funds. “This opens up equal opportunity in a way for banks,” he said.
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He added that most large Indian companies today are cautious about leverage. “Deleveraging is now a mindset issue with the Indian corporate,” Kamath said, noting that acquisitions now mostly happen in a friendly manner.
On the potential demand for such financing, he said there is strong global interest. “Every single entity in the financial services business globally is looking at India as a great place to come and set up a private credit business,” he said, underlining the opportunities created by the regulatory changes.
These are the edited excerpts of the interview.
Q: What is your view about the recent regulatory changes announced by the RBI, and how do you view their impact on the banking sector?
A: I look at it in a very broad frame, as it were. If I look at a few years back, what a bank could do and where we were at this point, for a variety of reasons, banks were primarily in corporate lending, working capital and corporate loans, and also infrastructure credit. So one side of the book – more than 50% – comprised these types of assets. The other side was retail assets. That has flipped, and particularly post-COVID, that has flipped in a very hard way, where you now have a majority of the assets in retail and then a smaller portion in corporate.
To me, what it means is that the banks were missing out on opportunities in an economy which is growing around, let me round out the number, 7%. So, in a 7% economy, the key driver is going to be your corporate side. And the banks were somehow getting left out of that sector for a variety of reasons – some of which have been addressed now, while others are more structural.
For example, there’s greater access to capital markets now, which, until 5-7 years back, the pension industry, the long-term savings industry, the insurance industry, and the MF industry were still growing. But now they’re growing at a pace where good corporates, large corporates, can access that market directly.
And so the banks, in a way, were – you could see in their capital adequacy – very flush as it were. So, I think this opens up equal opportunity in a way for banks and to me, it is excellent news.
Q: But, in terms of signalling from the RBI, do you think this is a very different regulator than what we had a few years ago? And, is the signal that this is a more growth-friendly regulation, or, as some in the industry have expressed concerns, is there some dilution of prudential guardrails as well?
A: No, I do not agree with that second proposition upfront. In my 55 years in business, I have not seen the RBI take its eye off the ball. They have never, ever – they are always very focused. So that is not an issue.
In terms of various regulators or regulatory heads doing various things over a period of time – again, when I look at things over time, and particularly from 1996, when I was in, I would say, a position where I could take a better look, regulation has always followed what is possible, given the environment.
So, we must remember, sometimes we don’t put it in context. We hit $500 billion as GDP only in 2004. So, the regulations that were appropriate for that period were in place during that time. As we headed from $250 billion to $500 billion – and I think it took us 20 or 25 years – regulations were appropriate.
Then growth momentum started, and we could see easing happening. So, I would think that at each point in time, every five years, in the RBI, I have seen an evolution in terms of how they look at what they need to do – in the context of the overall economy, in a policy construct, and in a supervisory construct. So, what they have done is appropriate considering where we are at the moment.
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Q: So mergers and acquisitions (M&A) financing – how significant is it, allowing banks to finance acquisitions, because what has changed from the RBI earlier not wanting to allow banks to do it, to now changing its stance on the matter?
A: We actually have to go back many decades to answer this question. And some of us are too young to have understood why this was not done. There was a period of time when we thought acquisition by one company of another company typically followed a hostile route, and that banks should not be an instrument in doing this. That was a long time back.
So, I think that has now been set right in the current context, where everything is market-driven and everything goes through the marketplace. And in any case, if acquisition financing has to be done, there are other people providing private credit to do this, or you go through the capital market route and do this.
So, I would think, looking at the risks at that point in time and the way business was being done, that was something that was not allowed. And now, in a completely different context, I believe the Reserve Bank has done the right thing by opening it up because it is an excellent avenue of business for banks.
Q: How much credit do you think all of these measures put together could unlock? And more importantly, while this is an enabler for banks to lend more, is there real demand on the ground from corporates, given the deleveraging cycle we have seen and the global uncertainty?
A: There are two different things. Deleveraging is now a mindset issue with Indian corporates. They will not leverage themselves – by and large, the larger companies. At the MSME end, that will happen in due course. But we are talking about mid to large corporates. It is not a question of deleveraging – this is for business purposes and acquisitions, and in most cases, these acquisitions are in a friendly mode.
It is not hostile, but you need to understand whether there are risks – what are the securities, what is the underlying value of those securities? All those analytical skills are required, and I am sure banks will come up to speed on that.
Now, your question was – is there demand? I will say this: I have not put a number to it, but every single global entity that I talk to – of whatever type – if they are in the financial services business, whether it’s a bank, non-bank, or investment bank – every single entity in the financial services business globally is looking at India as a great place to come and set up a private credit business, bringing in external funding and providing credit, which Indian banks are not allowed to do for the marketplace.
So the curiosity that was there, the interest that was there, and the opportunity that they saw – to me – means that it is a very large number being talked about.
For the full interview, watch the accompanying video
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