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The covid-19 pandemic has brought India to a juncture where the Reserve Bank of India (RBI) might inevitably have to expand its balance sheet to support the economy, veteran banker Uday Kotak said on Monday.

Such an expansion is a serious option when the country is trying to save lives and livelihoods, said Kotak, the promoter and chief executive officer of Kotak Mahindra Bank.

“I believe we have come to a time when we will have to be much more open to expand the balance sheet of the central bank and I think the RBI has given the signal through the G-SAP programme," Kotak said, referring to the central bank’s plan to purchase 1 trillion of sovereign debt papers from the secondary market in the first three months of 2021-22.

The G-SAP programme is also the first time RBI is committing its balance sheet for the conduct of monetary policy, as RBI deputy governor Michael Patra said on 7 April. In what is known as quantitative easing, the US Federal Reserve had embarked on a balance sheet expansion spree following the 2008 global financial crisis, buying bonds and infusing liquidity to prop up the economy.

Given the covid-19 situation, the expansion of the central bank balance sheet becomes inevitable to ensure that the state is able to support the needs of the people and the economy in the interim, he said.

The biggest struggle that governments around the world have faced, Kotak said, is the battle between lives and livelihood. “Ultimately, the loss of livelihood also leads to loss of lives," he said. India is at a point in time when it has to do whatever it takes to save lives first even as people battle for livelihoods, Kotak said.

India witnessed something similar last year when the government, in its urgency to contain the spread of the coronavirus, locked down the country without much of a notice. While one could argue that it helped check the spread, it also left millions jobless and terribly hurt the economy. Having seen that, the central government is not too keen on a national lockdown this time, though several states have temporarily restricted movement of people.

Kotak believes that the nation must be ready to curtail non-essential economic activity, perhaps restricting it to essentials such as movement of oxygen, production and distribution of drugs, and activities to create more hospitals.

In the throes of the second covid-19 wave, India’s healthcare system has not been able to cope with the surge in infections. “All of us in India made the mistake of underestimating the challenge of covid 2.0. We declared victory by January-February and thought covid-19 was behind us. We were almost triumphant about victory and then we got hit," Kotak said.

Kotak said he has great confidence in the resilience of the Indian economy and though last April-May everybody was in a bit of a shock, India came out of it by September-October.

Meanwhile, economists have begun lowering their FY22 growth forecast for India amid the second wave.

Kotak Mahindra Bank reported a standalone net profit of 1,682.3 crore in the three months to March 2021, up 33% from the same period last year on the back of higher other income and lower expenditure. Its gross bad loans as a percentage of all advances stood at 3.25% in Q4, up 100 basis points (bps) from the same period last year and up 99bps sequentially.

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