Discord between value, valuation expectation in fintech, digitech space: Kamath

Veteran banker K V Kamath on Thursday said there is a discord between value created and valuation expectation of fintech and digitech companies and emphasized on the need to set it right.

Speaking at the Times Network’s India Economic Conclave, Kamath said about six months back, fintech companies were strong and doing the right things but now a challenge has emerged between the value created and valuation expectations.

“It is a challenge between the value which has been created in each of these enterprises and then there is a valuation expectation. I think there is a discord between the value and the valuation,” Kamath, who is the chairman of National Bank for Financing Infrastructure and Development (NBFID), said.

In this valuation discord, digitech companies will have to understand their free cash flows and when they will hit the cash flow.

“The moment you say my burn continues and I need more money and I will come back to you, I think, you are going to get a shock,” he said.

The new digital startups should get their valuation and cash flow expectations right, he added.

Kamath said events of the last six to eight months have shown that these digital startups have lost two to three years in having to regroup them and come back with the undoubted value they have created for their products.

He further said the country’s banking system is squeaky clean and is well capitalized.

“Given clean up of the banking space that has taken place, we probably have a banking system that is so clean. I have not seen a banking system so clean in the last 50 years. So clearly speaking, you have a squeaky clean banking system and are adequately capitalized,” he said.

For the current stage of growth, the banking system has the ability to provide funds.

However, the banking system does not have funds to fund growth when the economy grows from USD 3 trillion to USD 5 trillion or to USD 7 trillion.

If banks continue to do well, then that capital will definitely come, he said adding mid-level banks need to show a greater level of agility and embrace technology in a much larger context, and quickly then might be doing today.

Talking about the economy, Kamath said he is confident the economy will grow to a USD 5 trillion in the next three years and to USD 7 trillion in the next 7-8 years.

The economy will be significantly biased towards the digital side of it and between the 5-8 year period, the digital economy should be 30-35 per cent of the overall economy, he said.

Kamath said the country needs to globalise its products as it has done with software products.