Banker Uday Kotak has called on the government and the Reserve Bank of India to expand their balance sheet, that is print money, to help support the economy amid the continuing Covid-19 pandemic.
In an interview to NDTV, the Kotak Mahindra Bank Ltd. chief executive officer said the government should consider cash transfers to the vulnerable sections of the population and consider spending up to 1% of GDP on this. This will also in effect strengthen consumption at the bottom of the pyramid, he said in the interview.
Among the business community, Kotak said there are two categories — those who are facing a transitory period because of Covid and those whose business model has been disrupted.
“Do whatever you can to support the first one so that they survive this and come out. For the second one, it’s a much more difficult one. If we believe they can’t sustain in this new world, we have to find appropriate solutions that take care of human sufferings, but you cannot make unsustainable business drag down the economy in the long term,” Kotak, who is also the president of the Confederation of Indian Industries, was quoted as saying.
In a separate interview to CNBC TV-18, Kotak said banks will have to bear some pain as the pandemic continues to hurt the economy. While banks have pushed for continuing relief from the RBI in the form of a moratorium and one-time restructuring, such back-to-back forbearance is not a good idea, Kotak said.
He broke it up into three parts.
Forbearance to the borrower, with the support of the government via guarantees is justified, said Kotak, adding that the pain in this case is taken by the government. “That doesn’t hurt the banks. It is using fiscal space.”
Second, private banks and non-bank lenders have raised capital over the past year and the capital situation of the banking sector is stronger than before. “Capital is the oxygen of the financial sector. With more capital, banks should be looking at restructuring and supporting their borrowers on the fundamental premise that if they restructure, they have better ability to recover down the line,” Kotak said in the interview. “This decision should be based on commercial prudence.” However, banks should be ready to make provisions and take the hit on the capital on account of this restructuring, he said.