Fintech companies may have lost edge, must generate profits: Kamath

Fintech and digitech companies chasing overheated valuations may have lost the upper hand to incumbent banks, veteran banker KV Kamath said at the Times Network India Economic Conclave 2022 on Thursday.

According to Kamath, the market could punish fintech companies if they fail to show healthy bottomline performance.

"In the entire fintech, digitech piece, there is a challenge that's very visible; there is a discord between the value that is being created versus the valuation expectation," Kamath said. "When you move from the private market to the public market, and you are unable to show sustained growth, you can't count the eyeballs you have to show the bottom line. If you tell me I don't know when I will make money, the investor doesn't want to deal with you at all."


Kamath said these companies will have to understand what their free cash flow is, when they will hit that, and that they will be punished by the market if their business fails to generate profits.

"The moment you say my burn continues, I am going to need more money, then you are in for a shock," Kamath said.

The veteran banker's comments come at a time when the share prices of some celebrated fintech and new-age companies like Paytm, PolicyBazaar and Nykaa have dropped considerably.

Kamath said that unless the digital startups are able to get their valuation expectations and cash flow right, the incumbents will have a lot of lead time.

"The events of the last 6-8 months have shown that they (fintechs) have probably lost 2-3 years; they have to regroup themselves and come back with the undoubted value they have created for their products," Kamath said. "In this period, the incumbent players will also learn to reinvent themselves because they have seen a challenge come very very close. So, it's going to be a very interesting watch."

Benefits of Democracy

Former Reserve Bank of India governor Raghuram Rajan, who joined the session through video conferencing, said the mistreatment of minorities sends out a bad picture and investors might not see India as a reliable partner. Rajan also warned about the consequences of mirroring authoritarian regimes like China and Russia, adding that there are long-term benefits of a democratic setup.

"Democracy is not always good, it slows down processes, but necessary for making better decisions," said Raghuram Rajan, distinguished service professor of finance at Chicago Booth. Rajan said India should not follow China's path when it comes to manufacturing, but instead focus on creating a large services economy which can be exported to the globe.