It has a significant impact on the transformation of broader India. 40% of our lending business is to the priority sector, which includes agriculture; 25% of our branches are in rural and semi urban areas. We believe that banks and financial institutions in the Indian context have a great future commercially and a great future for the development of India. Both are in a sense, interwoven and I don’t see a conflict between the two. But one needs to make sure that the model is right and the engine appropriate. Any policy sops, while not a commercial necessity, would be a wonderful commercial catalyst.

Mohammed Yunus commented in his interview to CNN that private banks cannot compete with microfinance policies in Bangladesh.
I am sure he has thought it through. His is a wonderful model. Indian Banks too are making a big difference to the broader section in India. Three to five years from now we will witness a lot of transformation in the smaller towns and villages as aspiration levels are changing due to the easy access to the mobile phone and the television. The sheer size and scale of India is huge and hence the question is of prioritization. There is an ocean of water; you have got to prioritize how much you can drink. You can’t drink it all.

What are the changes you would like to see in the Indian financial sector which could give an impetus to the entire industry?
There is a need for the policy makers to recognise that the markets are integrating much faster than the policy structures. It is a huge challenge for the regulators to keep pace with the markets. The second major issue by far, which I don’t think will happen in a while, is letting public sector banks go private. Public sector banks should be widely held public and not government controlled. Indian private sector banks should have the opportunity to buy them or merge them and that is key, because even today 75% of India’s savings are with public sector banks.

It is a huge pot which requires tremendous growth on efficiency, new products, and market place. Additionally, there is going to be a significant need for capital. Either the government has to use the tax payer’s money or it will have to dilute or constrain growth.

Do you believe Indian financial companies can compete with international players after the market is opened in 2008 – 09?
It is risky to answer such generic questions. If you structure yourself right, if you believe that you are appropriately geared for the future, I don’t see why Mumbai cannot be as big, if not a bigger, financial sector as New York, London, Hong Kong or Singapore.

Lloyd Blankfein from Goldman Sachs, on his visit to the ISB, mentioned that Mumbai has all the potential to become an international financial hub but if legal regulations do not support the potential, opportunities may slip away.
There are two parts to this. Part one is just simple things like infrastructure, roads, schools, houses, things which Mumbai has to fix. We also have to keep in mind that what makes a place a big financial centre, is also the people and the skill sets. One has got to have ‘Chutzpah’, and that is there in Mumbai. The momentum, the understanding and the aspiration – people in Mumbai have got it. But politics has to keep pace with what India needs for the future – and there lies a major disconnect.

There is a lot of discussion on how derivatives increase volatility in the stock markets and there is also the view that they are essential.
Derivatives are the reality. I don’t think we are any more in a time frame of philosophy. The question we need to address is two fold – first is the appropriateness for the target customer, second is the risk management processes. We need to make sure that we are selling the appropriate product to the right customer base.