RBI balance sheet expansion needed to fight virus: Uday Kotak

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.

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, on Monday.

“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 Rs.1 lakh crore 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 April 7. 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.

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.

“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.

Kotak Mahindra Bank reported a standalone net profit of ₹1,682.3 crore in the March quarter, up 33% from the year-ago period 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 bps y-o-y.