Road To Viksit Bharat: Balance Sheets Of Indian Banks Will Change — Kotak Mahindra CEO Explains Why

Banking or the "oil of the economy" will undergo significant changes as India advances towards its vision of becoming a developed nation, according to Ashok Vaswani, chief executive officer of Kotak Mahindra Bank Ltd.

For India to sustain its economic growth, the banking and financial services industry must continue to grow at 1.5 to 1.75 times the rate of the gross-domestic-product expansion, Vaswani said at the NDTV Profit Conclave in Mumbai.

"As economies develop, the balance sheets of banks are going to change. The kind of growth that is required cannot be supported purely by bank balance sheets," Vaswani said.

In developed countries, capital markets play a critical role in funding industrial expansion. Pension funds, insurance companies and alternative funding sources will need to evolve in India to support large-scale growth, according to the managing director.

He highlighted that interest rates tend to decline in developed economies, which leads to a shift in banking priorities, such as an increase in mortgage lending.

On private-sector capital expenditure, Vaswani dismissed concerns that bank-financing constraints have restricted investments. "At least in my view, private sector capex has not been restricted by the availability of bank finance," he said.

Instead, the CEO pointed to a trend where many promoters opted to take money off the table rather than reinvest in their companies, questioning whether this is driven by high valuations, company growth or shifting priorities among business owners.

Vaswani also acknowledged a transition in India's entrepreneurial landscape, where younger generations are increasingly drawn to startups rather than traditional operating businesses. "Today, youngsters want to do startups, and those will scale and drive the growth of the country. We are in a transitionary phase now," he said.

Reflecting on the impact of Covid-19, Vaswani recalled how both banks and consumers froze in response to the crisis. "Nobody was prepared for an event like Covid. It was unprecedented and banks became very, very cautious," he said.

Financial institutions, including Kotak Mahindra Bank, raised capital to manage the downturn, while consumers' savings increased on account of restricted spending opportunities.

However, once restrictions were lifted, a surge in "vengeance travel" and pent-up consumer demand reshaped spending patterns, he said. "The minute Covid opened up, everybody said, 'Oh man, now we have to go on holiday'."

This sudden spike in consumer spending, combined with government liquidity measures, allowed banks to extend credit aggressively, particularly to salaried individuals, he said.

Addressing the evolving relationship between banks and fintech companies, Vaswani described them as "frenemies". "Fintechs need banks for scale, and banks need fintechs for contemporary technology. The most successful fintechs and banks are those that build great partnerships," he said. 

Technology is transforming banking just as it is reshaping other industries. Technology is no longer a vertical in an organisational chart, but it is a horizontal that is too important to be left to just technologists, according to Vaswani.

He stressed that banks need to adopt a mindset of continuous change, incorporating engineers and digital experts to remain competitive. The CEO also underscored the emotional aspect of finance, arguing that banking products must align with customer aspirations.

He underscored the need for banks to create products that truly address customer needs. "Nobody gets out of bed jumping to get a mortgage. They want a home. No corporate is dying to get a loan; they want to set up a plant."