Excerpts from an interview: When do you see the emergence of Indian financial services sector players on the global scene, taking on the likes of American and European giants?
KAMATH: Today, Indian banks have emerged competitive and efficient and have the capacity to compete with foreign banks. There is increasing use of technology among Indian banks to provide banking services and they have the additional benefit of leveraging the cost advantages of the operating environment in India.However, for Indian banks to emerge as large players in international markets, it is important for them to gain critical size and scale. Indian banks are currently in the process of expanding their international presence as more domestic companies move abroad to take advantage of the opportunities afforded by globalisation. Given that India’s growth momentum will require enhanced financial intermediation, the scale of operations is only going to get bigger going forward, producing financial institutions that are competitive at the global level.

A recent report by Pricewaterhouse Coopers estimates that India could emerge as the third largest banking hub in the world after China and the US by 2040. Domestic credit in India is expected to balloon to $23 trillion by 2050, from less than half a trillion dollars at present. Your comments?
KAMATH: If we look at the opportunities present in the Indian banking space, these estimates certainly appear to be achievable. The biggest reason for saying this is our phenomenal economic growth. The current economic growth levels are sustainable and this means that by the timeframe indicated, the economy itself will emerge as among the top economies in the world. As I said earlier, the high economic growth will need to be supported by higher financial intermediation. The sheer scale of the economy will act as a catalyst for the growth of financial services, including banking. Even if we look at the current situation, we find that India is largely under-penetrated in terms of banking services. This represents several opportunities for the financial services sector in India from retail banking to rural credit. Banks have begun to position themselves suitably to manage the increased credit requirements of the economy, as well as participate in the process of financial inclusion. As our growth momentum continues and the banking sector widens its outreach to the rural masses, we will see the rapid scale-up of the banking industry. In view of this, the numbers in the report stated by you are not surprising and eminently attainable.

Indian banks have usually followed the ethnic Indian community, opening up branches in nations with a large non-resident Indian (NRI) population. Is this trend likely to continue in the future, or would Indian banks also compete with international institutions in other parts of the globe?
KAMATH: It is true that Indian banks have followed the Indian community and developed their business and products as per the requirements of the vast NRI population. This model of o v e r s e a s b u s i n e s s development was quite logical as Indian banks were in a phase of exploring new and highly competitive markets with almost no brand recognition. Within the NRI diaspora, however, Indian banks were known entities and were able to draw significant business, especially with India-linked products like remittance facilities. Going forward, I see the development of capabilities to serve the overseas market itself as the next step for Indian banks. Two factors will drive such growth. First is the emergence of Indian corporates at the global level, as evident by the increasing number of high-value mergers and acquisitions being undertaken by them. Second, the cost advantage available to Indian banks due to the ability to outsource core activities to India will allow them to offer products similar to those offered by foreign banks at significantly lower prices. Given the trends in overseas banking, I believe that as Indian banks gain experience in overseas markets, build a franchise and attain critical size, they will become highly competitive as compared to other international institutions.

India’s financial services sector has been one of the major beneficiaries of economic reforms, which have helped it expand phenomenally • including in banking, insurance, mutual funds, etc.Do you expect reforms to gather strength over the next few years, boosting the fortunes of the industry?
KAMATH: The financial services sector is a mirror of the economy and the performance of the financial sector reflects the country’s economic growth as a whole. In that respect, the reform process has been beneficial to the financial sector by facilitating the transition to a phase of high economic growth. At the same time, reforms have promoted competition, and hence greater efficiency, in the financial services sector, with the emergence of private sector players and the entry of foreign players. The benefits of the entire process are evident. I believe that the reform process will continue to unlock economic potential, which will, in turn, provide impetus for further growth in the financial services sector.

What are the reasons for Indian’s excelling in matters relating to finance? This is evident in the number of chartered accountants and finance executives dominating New York’s Wall Street firms, and also in the City (the financial district of London).
KAMATH: Indians are excelling not only in finance, but in most other fields. If you look at major industries in the world like information technology, software, pharmaceuticals, financial services, you will find a large number of Indians involved. Our people have an inherent talent for analytical thinking, which, coupled with our quality education system, yields a large pool of highly skilled and technically proficient people. This aspect has been recognised globally and it is thus no surprise that Indians have been excelling themselves in almost all fields, including finance.

With Indian corporates increasingly playing a significant role globally - acquiring firms, opening new branches, forging joint ventures - do you see domestic banks like yours benefiting significantly by assisting them in finalising deals?
KAMATH: Indian companies have embarked upon capacity augmentation to meet the rising needs of a growing economy. In addition, a number of domestic companies are expanding their presence abroad. Growth, both organic and inorganic, seems to be inexorably driven by the exigencies of the business environment of the day. The global aspirations of Indian corporates are evident from the increasing number of high value foreign company takeovers and the growing significance of international operations in their overall business. The rapid expansion of Indian companies has driven an increased demand for finance. Going forward, this trend is expected to assume further prominence, driving business opportunities for banks. In view of these opportunities, banks will increasingly look to position themselves in terms of the right product and advisory skills in addition to having the right international presence to leverage the growing international presence of domestic companies.