K.V. Kamath, the Ex-Chairman of New Development Bank in an exclusive interview with CNBC-TV18

Q: Starting with your last assignment – yesterday you stepped down from the New Development Bank. You were the first President of the bank. What would you count as your biggest achievements in the last 5 years?

A: I think making a very simple statement that countries in the south can come together, stand on their own feet, and spell out their own destinies. I think that is what the NDB proved because so far it was always working with the Western, the rich countries who had set up development banks and developing countries supported by these entities. But here (in NDB), you have a bank by and for the countries of the south.

Proving that concept to me was the biggest achievement of this bank and in the process, we also established that it is possible to have a very high rating for countries that are developed. So we have AA+ rating and could set up new agendas as it was local currency financing and of course, scaling up at speed. I think all this is something that we could be proud of.

Q: How many loans you have been able to disburse in the last 5 years and for what?

A: We have lent to all 5 members; all 5 members are the borrowers. The loan book in terms of approval is around USD 18 billion at this moment, the disbursement book is around USD 4 billion. In a development bank, business happens with a lag, so I think it will ramp up in the next 2 years. The growth has been upwards of virtually 100 percent for each of the last 3 years. So capital has come in time and the loan book has also grown up at a very robust pace.

Q: What would you see as the big challenges for this bank going forward given somewhat the India-China standoff in recent times?

A: The bank looks at it itself as for the interest of the five members. I think that will continue the same way as we go along, as long as there is a development need in all member countries. The bank is now looking at inviting more members into its fold. I think the bank’s purpose will be served and this will drive the point made earlier that countries in the south can stand on their own feet and write their own destinies. So this bank, I see, has a very bright future in the space it operates in.

Q: Coming to India, you have been away for the last 5 years and let me ask you a broader question and then I will come to the specifics – how do you see the last 6 years of the Modi rule in India?

A: We need to start at the very beginning. I am talking about it in an economic sense. In the economic context, if you look at 2014, we had a lot of pieces that we called as stranded assets. So we come from there to where we are today, to repair those assets, to put them into productive use, and then drive the economy along. The economy was coming along at fair speed and it synced with what is happening around the globe in terms of hiccups that global economy felt and in a way we are feeling those hiccups. But the process of opening up the process of engaging, the process of diversifying, and the process of building scale was happening at a real pace. It is that pace that has built up and given the government the confidence to say that the aspiration is to be a USD 5 trillion economy in the next 5 years

Q: Interesting talk about the USD 5 trillion economies given that post-COVID forecasters have been predicting somewhat a bleak outlook for the Indian economy. The IMF says that the economy will contract by 4.5 percent, Goldman Sachs puts the number at 5 percent. In fact, OECD is saying that it could decline by even more than 7 percent if there could be a second wave of coronavirus. What do you make of all this?

A: I have a slight contrarian view on this and I look back at my experience. Most of these numbers come out of models and you know what happens in models; the robustness of the output is directly proportional to what goes in. So in terms of COVID, not only in India but in most of the world, it is difficult to predict what is happening. Having said that we need to look at a different set of numbers that the government is using and I am happy that they are using these numbers. These are basically numbers that are readily available, what we would call high-frequency data. If I look at that sum total I will explain that in a moment, I get a different picture, at least in India things seem to be coming around or will come around much quicker than any of these agencies or institutions estimated. If I look at 4-5 components of our economy and the steps taken by the government and I think that is critical; the continuous steps that have been taken and all this have been very beneficial for the economy and helped in the turnaround.

First, I will look at agriculture because that to us is the core of India – that still is a large employer though its share of GDP has dropped over the years. I find agriculture has come back very quickly, rural India has been less affected by the health challenges and connection to the market has transformed dramatically. Today a housewife is a direct consumer from the field and she knows how to manipulate Google pages or spreadsheets, do an online transaction, pay for it online, etc., and for all this, thanks to the preparation that was done over the last 3-4 year. We have a digital economy in place, the Jan Dhan accounts in place, villages also connected through a robust internet platform. So, farm space, I am more optimistic about, the farm employment I am more optimistic about.

Earlier we talked about manufacturing agro products, going back to the Taluk level given the drive that we are seeing, so that space is going to get back on its feet. The last number that I had, one of these high-frequency numbers is the sowing season; it’s about 90 percent higher than the same time last year. So again good news on the agro front. I then jump to the other side which is a large industry. You can deep dive into any of the databases that we have and you will find that top India company never so deleveraged as today. If I look at 2000-2010 and today, these companies are by and large free of debt. So they will go through pain, but they will come back quickly. I do not think they will have balance sheet distress, they will not end up having broken balance sheets and indeed we find some of these companies now coming back to speed in terms of what they are producing. So large India is fine and then you have knowledge India and that business has been indicated that you can work and derive value and provide value.

The e-commerce industry has been the backbone of these last four troubled months in terms of health channels so they have provided an extreme degree of support to the economy.

Now come to 2-3 pieces in the middle, but first was the sad situation with regards to our migrants which happened right at the beginning – that again the steps taken by the government in terms of providing them a helping hand whether it is in terms of food or MGNREGA and if we now can provide employment at the rural end and of course some employment will come at the urban end, but this part of the economy will come back obviously. This will require careful attending by the government and I am sure the government is doing it.

Then I talked about the large mess of SMEs that we have and the pain and the hurt that they have experienced and that they are going through. If you see the package that the government has offered or has put in place that is where the largest piece of the package is, and I am sure as that package gets rolled out a and b – these companies find a market for their products whether as part of a value chain through the larger companies or directly from the market I think these companies will come out of that pain. It leaves 2-3 areas which are experiencing pain, we will have to see how to help them. A) I think construction, real estate, particularly in urban areas. I think in rural areas it will come back rapidly.

Infrastructure because there may be constrained in how much you can spend, there could be a degree of pain. Then of course financial services because it takes the brunt of all this pain on its shoulder as it were and we will need to see how we can provide helping hand to this sector.

But before I finish this sector, just one more point – again high-frequency data as comes out from watching industry leaders speak it is very interesting when leader after leader is talking about their own manufacturing activities coming back to 80-90 percent capacity utilization, the supply chain, and the logistics chain is coming back to speed and so on and then we have other secondary data whether it is the power generation, back to 90 percent or 95 percent, freight movement by rail, almost back to old levels and so on.

Several indicators that are coming back to normal are indicating that the rebound is faster than what most of us thought including me and again data with the bankers indicate that; for example, two-wheelers are back to 70-80 percent of what they were. Tractors are back to 80-90 percent of what they were and mortgages other than in urban areas are also back to 70-80 percent where they were. So what does this tell me? This tells me that maybe the negative numbers that people were talking about, the order of contraction probably is not going to happen. We will probably have not so hard a landing. I will not venture to put a number because I think we are still watching and observing but my own feeling is that looking at all this that the landing will not be as hard as feared. So I salute the government for steps that it has taken and the impact that it will have on this what I would call not a hard landing.

Q: That was a great perspective and I think it would be music to the ears of some of our viewers. The very optimistic scenario that you are painting for us. Let me stick with 1-2 broader numbers and we will come to specifics again. Would the fiscal deficit worry you at all this year? There is a feeling – some economists feel that we should not worry so much about the fiscal and concentrate on reviving demand? How can this be done and what are your views?

A: Long back I used to say that I have the luxury of not being an economist so that if I say something nobody should misunderstand what I am saying. It is not coming from an economist perspective. I believe there is a new normal and in this new normal, I think concepts such as deficits, we need to put them on hold. I think we need to work for the here and now and the here and now called for a new normal, new numbers and new ways of looking at things. As long as you don’t do anything which will permanently tear the fabric of our economic growth. I think experiments will have to be done by the government. I am sure government also will look at the deficit in that context because to do all that, deficits will have to be played around with and I for one will actually applaud this rather than criticize this because it is very much needed to get this country back to even keel in the economic context.

Q: Would you say and again there is a lot of talk about this, would you say that we can expect a V-shaped recovery of sorts? The markets have been on fire over the last few weeks, we are talking about Nifty at 10,750 and if you look at the global picture in the US in June 4.8 million jobs have been added, and in Europe too, the picture is looking better. In India GST collections are up, so would you say that there would be a V-shaped recovery of sorts?

A: Let me just preface that by saying in India also the job situation has improved in factories. I saw CMIE numbers the other day, almost all the jobs we lost in the last April-May or April period where recovered in the May-June period. So once you look at more hard data we can take a call on that part – on the jobs part of it. But on the recovery front, the initial thoughts were that this is going to be a ‘U’ with a very long base and that would not have been very good for the country.

As of today, having said what I said, and observing what I have observed I think it will be a ‘U’ but with a very narrow base, not a very long base. Thereafter you go to the other side of the ‘U’, probably the ‘U’ will be not 90 degrees ‘U’ but it will be almost like ‘V’ accelerating faster. But we will know this for sure once a few more industries talk about what is happening in their own sphere. I would be delighted if it turns out to be shallow ‘V’ but as of now to me, it looks like it will be a shallow ‘U’, and maybe next month I could be pleasantly surprised if it ends up being some sort of a ‘V’. But as of now, there will be a little bit of pain and then we should be out of it.

Q: Let me come to the recent reforms that the government has announced even in the pandemic. If you look at trade, agriculture…in agriculture, commodities have been freed up considerably, coal mining even railways have been opened up. How do you see this in the backdrop of a clarion call by the Prime Minister for an Atmanirbhar Bharat?

A: I think absolutely spot on, I think Atmanirbhar is the call of the day. I believe today the Indian entrepreneur has a new spirit in it to battle this challenge that they have. I think it is the right time to look at a larger context of Atmanirbhar. My own suggestion in this to operate India in terms of policy would be to see what are the challenges that corporate India faces in executing Atmanirbhar. This is executable for sure, we need to examine the challenges in executing it.

My own view is in a historical context, if I look at 10-15 years back maybe 15 years back is a good call, if you were to execute Atmanirbhar, you had a challenge because you did not have the scale. You had industries that were coming out of problems of the ’90s, trying to gear up for a new scale as it were, new quality connotation, new cost connotation, and so on, new competitiveness all that was gained. But still, we did not become truly Atmanirbhar in wider context that the Prime Minister indicated. Now what we need to really look at is what are those constituents or support that we would need to provide to corporate India and the entire system to make this work.

In one phrase if I were to put it, ease of doing business, can we revisit this whole platform of ease of doing business in a soft sense, not the hard sense, not the sense where you have to set up new capacities or you have to learn how to do business, how you become competitive and so on, but the day-to-day operations and how you get them to be seamless. I think this I am sure government will do, I am sure industry leaders will work with the government on this front and that will truly be a big step towards Atmanirbhar; that is my view sitting at home, not having my hands into the business, but I can well feel what business is trying to tell and what they are trying to say.

Q: A large part of Atmanirbhar Bharat is also about easing the credit flow to MSMEs, something that you touched upon. How do you think this will play out?

A: I think there are 3 components to this in terms of credit. I think one is the cost of credit, the second is the flow of credit, and the third is the momentum of credit – making sure the velocity of money is maintained. I think all three have to be in sync. By lending a large package in terms of guarantee support, honestly, the government has done its bit. We now need to make sure that the banks truly are able to lend this out.

Again, if I look at it, this is government guaranteed money, so can the banks provide it to the business at an even more affordable rate because at the bottom this is government-guaranteed credit. Yes, you must recover your cost of operations and have a reasonable spread, but virtually your risk is coming down. However, at the base, this is government money that the government is standing at your back as it were. So low-cost credit, quick disbursement of credit, and making sure that the chain of credit flow goes unimpaired and unhindered I think is what business and the banks will have to work towards.

Q: On one hand we are talking about a self-reliant India and on the other, we talk about opening up the economy. Some critics argue that this self-reliance could also lead to some kind of isolationism in the Indian economy when it comes to trade with other countries. How do you react to this?

A: Not at all; I do not think that is true at all I think from several counts. If I look at markets, India is a very large market and as we head towards the USD 5 trillion economies, and I am clear this country is going to head towards the USD 5 trillion economies, the domestic market is going to get bigger and bigger which means that domestic companies will have a large space to operate in. Now in terms of how they balance domestic production and domestic supply with access to global markets is something that they will have to carefully work on.

If the feeling is that they have taken it slightly easy, I am not saying they have, this is an assessment they have to do — they will then have to see whether this particular item could be indigenized rather than relied on imports always. This is the first step we need to take. I am again hearing on news shows, they talk about APIs (active pharmaceutical ingredients), they talk about components for certain manufacturing industries and so on – I think a relook will be taken. But I think Atmanirbhar to me also means that at the end of the day with all these things, your own strength and leveraging global strength, how do you look at the global market and how do you stand as a player in the global market because that accelerates your path to the USD 5 trillion economy. Of course, there are several other drivers for the USD 5 trillion economy, but in the context of Atmanirbhar Bharat, I think that accelerates a larger marketplace.

Other parts about Atmanirbhar as I can see clearly are getting your infrastructure in place. Again, rapid progress has been made, but we could look at the same thing that we probably could do in the manufacturing side — what are the soft issues that are a challenge on the infrastructure front, how do we address them. This is something that we could do apart from rolling out infrastructure.

I see one challenge – you talked about deficit and funding, I think one challenge that we will hear increasingly in the next one year is how do we meet our infrastructure aspirations given the challenges that we will have on the fiscal front. This is something that the government will need to think through. As I said, maybe it is time for a new normal, not look at old concepts of deficit financing and so on as long as we are sure that we can keep the fabric intact.
So, there are I would think of many aspects to Atmanirbhar Bharat. India is a land of opportunities and so there is going to be no shortage of things to do which is unlike several other countries. They are searching for what is it that you can do to drive growth, we do not have to do that. We have unfinished agendas in almost all areas that we look at whether it is providing housing to our masses, whether it is providing robust infrastructure, whether it is keeping up the infrastructure chain, whether it is manufacturing, whether it is food products, I think we have enough to do to grow at a rapid rate – by rapid rates I would think double-digit growth for a very long period of time. By a very long period of time I mean upwards of 10-15 years for a minimum but upwards of 15 years. So, that is what you will need to truly transform this country.

Q: India today has the third-largest number of COVID cases today in the world, after the United States and Brazil. You have been friend, philosopher, and guide to many industry leaders in India, you must be talking to them, what is the sense you get from them today regarding COVID and the road ahead? How are they dealing with and coping with this?

A: It is interesting, if I hear them speak they all want to get along with business and in that context the steps taken by the government are appropriate. Because otherwise, we would have locked in, we would have caused misery to a whole lot of people and then we would have had a challenge. I think the way the country is addressing this and this probably state-by-state, city-by-city the strategies may be slightly different, but I think we are coming to a situation where we are saying we should concentrate on recovery. The challenge of getting the illness is probably – the illness is going to happen but how do you manage the recovery process I think that is the strategy that state governments are looking at, cities are looking at – that is all the right way to do it.

As far as business is concerned given the constraints, they are trying to see how they could operate without exacerbating the situation and yet keep the economic momentum going. I think this is going to be a very careful balance, each country will have to learn. I think the learnings are coming in virtually daily. From our country’s point of view, one thought that I have is that these learnings should be shared and these learnings should be standardized because I see now in some states there is a second wave. I am equally saying that the challenges that Mumbai or Maharashtra or Delhi had gone through and what response Mumbai or Maharashtra or a Delhi had, these learnings should be taken to those states where the challenges are just not erupting I think we would be all better off. But I am sure it will happen. This is the way we will need to combat the disease because the disease is going to be with us for quite some time. We will need to take care but at the same time keep the momentum going.

Q: Let me turn to the banking sector, clearly the banking sector was struggling under the burden of bad loans even before COVID, do you feel that after this that could exacerbate that problem could become worse, does it worry you at all?

A: If I look at pre-COVID, I will only amend what you said very slightly. I think the banking sector was having a problem, but I think the banking sector with all the efforts of the government, the capital that was injected and so on, was coming out of the problems. It needed a little more hand-holding when it was coming out of the challenges. Clearly, the answer to your question is yes, there will be a challenge and the sectors where we will have challenges are also known. So what is the key response?

The key responses are on three levels. I learned this lesson very long back in my previous stint as a development banker, not the current stint that the only way a bank can survive is by growing. You do not allow a bank to grow the bank is going to — the problem of NPAs is going to unmanageable. So you will have to grow your way apart from corrections in terms of provisioning, capital injection, and so on bank will have to grow its way out of NPAs. Growth is going to be a critical part of the banks coming out of this. So I think with the steps that have been taken the growth will happen whether it is in corporate India, whether it is in rural India or whether it is in retail India I think we need to maintain the momentum of growth.

Second is at this point in time low-interest rates. Lower interest rates are going to be critical for the survival of banks and I will explain why? Take a very simple scenario, if interest rates are 12 percent your NPA doubles in 6 years, and there is no chance, no chance at all institutions have if an NPA is going to double in 6 years without massive capital injection. So you need to get interest rates down so that you buy time for the banks to heal on their own. So you turn the thing around, the bank lends at 6 percent, they have 12 years for the NPA to double and clearly you will have at least one if not two economic cycles in the period which will raise all boats and the banks will be able to come back to health. Yes, the capital injection will be required, but the order of capital injection will be significantly lower than what it is if you run it in a high-interest rate regime. So I think banks really need to look at how they work with the government, with the regulator to ensure that the low-interest rate climate endures.

Having said that interest rates have started dropping, I would guess that interest rates need to drop even further if the banks have to come around without too much pain. Otherwise, they will probably come around but extreme pain and money being provided by various stakeholders which is going to be a challenge that is the second part.

The third point I would think is some steps were taken, the moratorium was announced by the Reserve Bank of India (RBI) and there was also an extension of the moratorium; very well done. I am even more heartened when I see bankers come out and say or some NBFCs come out and say that ‘X’ percent of my customers took the moratorium, that was 2 months back, but today remaining of them have said that we will pay in time; extremely good news. So, I would think and hope that continues.

However, having said that, if there are sectors who genuinely have a problem, I would think that it is right time that policymakers could consider, again I have no prescription but could consider a moratorium of longer nature, maybe a one-time moratorium. I have heard other banking leaders talk about it and I would stand with them to say that that is probably the need of the day and probably the lowest cost way in which you will put the banking system back on its feet — low-interest rates, one-time moratorium, and provide them a market to grow and encourage them to grow. I think this puts back banking on its feet quickest; this is the lesson that I learned going back almost 30 years into my career or more and I think it stands true even today. This is something that we could consider.

Q: NBFCs are also somewhat of a fragile lot. Do you think that there could be a repeat of something like a DHFL? There are a lot of stressed companies out there.

A: I want to separate the challenges that some of them face. Most of them I think are in the business of lending and lending in an appropriate way and the challenges have come up because of circumstances. To that extent, whatever I said about the banks would apply to these companies also.

If there are entities, which did things that they ought not to have done, I think they need to be looked at differently and we should not paint all NBFCs and all banks with the same brush. Equally, companies that might not have done appropriate things need to be dealt with in a separate manner. I would think the large mass in the financial sector is doing business in an appropriate way and should be encouraged to do it that way.

Q: Let us turn to China for a moment. Heartening news that there is some de-escalation happening between the two countries. You have spent the last five years in China. What are your impressions of the country, its rulers, and the people?

A: I will basically talk about the economy and then put some things in context. Whatever one says in terms of the process of development, the economic growth, it is visible. So you cannot take a call and say that economic growth has not happened. You take any city, large or small, today it is clean, it is organized, and there have been efforts at cutting pollution, getting the environment right, and getting processes and systems to work. That is a given.

I think in the context of challenges that our country and China have faced, I would leave it to our government. I think the government has taken appropriate steps and I am sure they will do whatever is appropriate in the interest of our country because every country’s interest is what is paramount to the leadership and that is exactly what I see our leaders doing. I am sure things will come to normal soon.

Q: Some people say that this recent stress on Atmanirbhar or self-reliant India is code speak for reducing dependence on China. We have seen banning 59 apps, we are looking at imports from China – they are under close scrutiny, and so on. What do you have to say about this?

A: I would look at the indigenization process separate from the Atmanirbhar process. I think what we are talking about here is a narrower indigenization process, which has to happen and it has to happen with all our partners, wherever we are getting stuff from. We will need to see — should we not be, in a competitive and quality conscious way, making this ourselves. I think every Indian company needs to look at this and that could be done in partnership with whoever can provide you knowledge if necessary.

I think Atmanirbhar is a much bigger concept. It is the ability to stand on your own feet, look after yourself, as the Prime Minister so eloquently articulated. So I would disconnect these two. There is an opportunity to indigenize, let us do that. There is a bigger opportunity at being Atmanirbhar, let us do that.

Q: Do you see India as an alternate manufacturing location to China for global companies?

A: I would look at it in the following way. India is a global manufacturing base. I think some of the things, as I said earlier, particularly getting soft issues, and ability to do business with ease is a key to success on this front. If you get that right, our industry can be a world-beater.

Q: You have not been in India for the last 5 years but you have been so often in the news especially among us – the journalists — about the possibility of taking up a big assignment with the Indian government. Anything on that front?

A: Absolutely not. Twice earlier, I have said that I need time. I am getting older as well and I need time to be with family, I need time to be with my grandkids, and every time I say this and few years pass and they get bigger and I get older.

Q: The last time you said you were packed off for 5 years to Shanghai.

A: Yes, but I am saying that again and I have told my friends who were talking about now what. I said let me put up my feet and relax, but my thoughts are always with the country. Somebody like you talks to me and I get energized to share my 50 years of experience and that is what I will continue, put my thoughts on the table. I wish the country a great success. I think we are destined for great things.