"Want To Be A Bank, But...": Nikhil, Nithin Kamath On Zerodha's Future

Zerodha co-founders, Nithin and Nikhil Kamath, are pushing for transformative changes at their company, with the goal of becoming a bank. In a discussion alongside Chief Technology Officer Kailash Nadh at Zerodha's Bangalore office, the Kamaths addressed the pressing challenges facing their company and the broader Indian startup ecosystem.

Nikhil Kamath shared his frustrations regarding Zerodha's attempts to secure a banking licence, which he views as essential for the company's growth. “We've been struggling for a long time to maybe get a banking licence… we really want to be a bank, but we have tried over the last many years; we have not been allowed to,” he revealed in a podcast with CNBC-TV18. 

The trio believes that diversification is crucial for Zerodha's future, especially considering the evolving regulatory landscape. Nikhil Kamath envisions Zerodha as “that financial institution which does not only broking but anything anybody might need in finance.”

Nikhil Kamath also addressed the climate of fear and uncertainty within the startup ecosystem, urging for collaboration among entrepreneurs, regulators and the government. “We are subject to regulators who we don't really have any influence [with] or access to their decisions, who can reduce our revenues by 50 per cent in one day,” they remarked. “They can make us shut down.” 

While acknowledging the positive aspects of Indian regulators, Nikhil Kamath warned against the pitfalls of excessive regulation. He likened the current regulatory environment to a classroom where strict rules stifle creativity. “In a classroom with 50 kids, where the teacher makes the rules and reprimands kids at will, will there be innovation coming out of those kids who are living in fear? Likely not.” 

Nithin Kamath echoed these concerns, noting that Zerodha's revenue growth might slow down due to new regulations from the Securities and Exchange Board of India (SEBI). He pointed out that the true-to-label circular could negatively impact their financial performance. “Running a broking firm is a tough job,” he said.

Despite the challenges, the founders were optimistic about the future of the Indian startup ecosystem. Nikhil Kamath stressed the importance of changing mindsets, advocating for an “ally mentality” between entrepreneurs and regulators. He said, “If I were to look at what can help India go from A to B… having an ally mentality, where entrepreneurs work with regulators, work with the government, and if we are able to mitigate fear to a large degree, more people will go out and attempt entrepreneurship.”

The conversation also touched on the restrictions imposed by SEBI on private market investing. “The only boundary right now is the fact that SEBI has this regulation which doesn't allow us to invest off our books,” he explained. Nikhil Kamath proposed a 10-year amnesty programme to foster innovation without the fear of punishment for mistakes, which is a more forgiving approach to entrepreneurship, much like China's economic reforms in the 1990s.

Kailash Nadh, however, warned against a blanket amnesty, advocating for compliance and accountability. “I'm not a believer of the failed Silicon Valley fail-fast model. Maybe that works for no-risk consumer technologies. But when you're building serious stuff, something that involves people's money, you should not have an ‘E-commerce First' way of doing it,” he asserted.

Despite differing opinions on the approach to easing regulatory pressures, all three founders agree on a shared vision for Zerodha's future.