MUMBAI: Kundapur Vaman Kamath, the veteran banker who led the rapid growth of ICICI Bank and helmed it for nearly two decades from its inception and make the largest private sector lender within few years, has spoken against allowing corporate houses into banking space, saying the regulator has to be satisfied that they will not misuse public deposits through the backdoor.
Kamath, who also headed New Development Bank, the developmental bank floated by the BRICS groups as its first chairman, said the Reserve Bank needs to take extra care when it comes to digital lenders, saying there are more than enough signs of rash behaviour by them.
“The primary regulatory purpose of banking is to ensure the safety of depositors’ money. So, a little more time is still needed for corporates to be allowed into the banking sector. Because before letting corporates into the banking space, the RBI has to ensure that they will not use the deposits they collect from the public for their (corporates’) own funding needs. The regulator must first feel comfort in their presence and behaviours,” Kamath, the chairman of Jio Financial Services, the yet-to-be-operational financial services arm of Reliance Industries, said while talking at the Lalit Doshi memorial lecture here over the weekend.
On a question on fintech turning themselves as banks, he warned that there are signs of rash behaviour by some of them.
“I am seeing some signs of rash behaviour by some digital lenders. I’m being very frank about it...on the part of digitally-driven enterprises, I think, the RBI will have to manage with great care,” he said.
He also spoke against the calls for privatisation of more state-run banks.
“If the state-run banks have return 15-20% on their equity (RoE) why should they be noted allowed to thrive? Where is the room for privatisation with such good return? But of course he said they need to be given more operational freedom.
Kamath said most public sector banks are self-sufficient now when it comes to capital and can match their private peers on technological capabilities.
Early in the year, finance minister Nirmala Sitharaman had said privatisation of public sector undertakings was very much on the table and the government was committed to do it but the timing will be decided later by the Cabinet.
But he batted for more banks and more so more large banks which could happen either through amalgamation or rapid growth, which is a must if the economy has to double from what it is today.
“The first step to reach the target of an $8 trillion economy (over the next decade or so) would be to have a lot of large banks. Our banks need to bulk up and the size of banks that we have today will have to expand dramatically. The good news is that our banks are having an RoE upwards of 15 percent and this is good enough to grow at a healthy rate and meet the size of bulking up,” he said.
It can be noted that while for the public sector banks the RoE chart over their private sector peers, with SBI leading it with 20.8%. But private sector banks lead in return on assets (RoAs) with 1.70-2.40%, which for public sector ones is only 0.70-1.13%. Return on equity (RoE) of private players is much lower at than their public counterparts.
The RoE of state-owned banks was in the range of 13.50-21% in Q1FY25 compared to 13.50-17.70% range for private banks.
Among state-owned banks, Indian Bank had the highest RoA of 1.20% in the first quarter, followed by State Bank of India at 1.10%. Bank of Baroda, Union Bank of India and Canara Bank reported RoAs of over 1 percent.
Like RoA, RoE is also a measure of a bank’s ability to churn profits. While RoA weighs profits against the assets of a bank, RoE indicates how a bank or company has utilised shareholders’ funds to generate profits.
State Bank of India reported the highest RoE of 20.98% in Q1FY25, followed by 20.88% by Canara Bank, 19.76% by Indian Bank, and 17.45% by Bank of Baroda. In the private bank space, ICICI Bank reported an RoE of 17.70% in the April-June quarter, and Axis Bank, 16.68%.