The covid-19 pandemic has brought India to a point where the Reserve Bank of India (RBI) will inevitably have to expand its balance sheet to support the economy, veteran banker Udai Kotak said Monday.
This expansion is a serious option when the country is trying to save lives and livelihoods, said Kotak, founder and CEO of Kotak Mahindra Bank.
“I believe we have come to a point where we have to be more open in order to expand the central bank’s balance sheet, and I think RBI has given the signal through the G-SAP program,” Kotak said, referring to the central bank’s plan to buying ₹1 trillion sovereign debt in the secondary market in the first three months of 2021-22
The G-SAP program is also the first time that RBI has released its balance sheet for monetary policy, RBI Deputy Governor Michael Patra said on April 7. As part of so-called quantitative easing, the US Federal Reserve began expanding its balance sheet following the 2008 global financial crisis, buying bonds and injecting liquidity to support the economy.
Given the covid-19 situation, an expansion of the central bank’s balance sheet becomes inevitable to ensure that the state can support the needs of the people and the economy in the interim, he said.
According to Kotak, the biggest struggle facing governments around the world is the battle between lives and livelihoods. “Ultimately, the loss of livelihoods also leads to loss of life,” he said. India is at a point where it must do everything it can to save lives in the first place, even as people struggle for their livelihoods, Kotak said.
India witnessed something similar last year, when the government, in an effort to contain the spread of the coronavirus, blocked the country without further notice. While it can be argued that it helped contain the spread, it also left millions out of work and caused enormous damage to the economy. Seeing this, the central government is not overly interested in national isolation this time around, although several states have temporarily restricted movement of people.
Kotak believes the nation should be prepared to cut back on nonessential economic activity, perhaps limiting it to essentials such as moving oxygen, producing and distributing drugs, and building more hospitals.
In the throes of a second wave of coronavirus, India’s health care system has been unable to cope with the rise in infections. “All of us in India have made the mistake of underestimating the covid 2.0 problem. By January-February, we had declared victory and thought that covid-19 was over. We almost triumphed in victory, and then they hit us, ”said Kotak.
Kotak said he is very confident in the resilience of the Indian economy, and although everyone was in some shock last April-May, India pulled out of it by September-October.
Meanwhile, economists have begun to cut their fiscal 22 growth forecast for India amid the second wave.
Kotak Mahindra Bank reported autonomous net profit of ₹In the three months to March 2021, Rs 1,682.3 million, up 33% over the same period last year, thanks to higher other income and lower costs. Its gross bad loans as a percentage of all loans were 3.25% in Q4, up 100 basis points (basis points) over the same period last year and 99 basis points sequentially.