RBI Asks Banks To Create ‘Covid Loan Book’ To Support Health Sector

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The Reserve Bank of India will provide a special liquidity facility to enable banks to step up lending to the healthcare sector as India battles a severe second wave of Covid-19 infections.

The central bank hopes to incentivise banks into create a ‘Covid loan book’, which can meet emergency funding needs of hospitals, vaccine manufacturers, medical equipment importers and even patients.

  • The RBI has opened a Rs 50,000-crore on-tap liquidity window with tenor of up to three years. Banks can borrow from this facility at the repo rate of 4% till March 31, 2022.
  • Banks can borrow from this facility and lend to a range of entities within and linked to the healthcare sector.
  • These loans will be classified under priority sector till repayment or maturity, whichever is earlier.
  • Further, banks can park liquidity equal the size of the ‘Covid loan book’ with the RBI at a rate which is 40 basis points above the reverse repo rate of 3.35%

“In the fight against the second wave, alleviating any constraints from the financing side for all stakeholders—governments, hospitals, pharmacies, private operators engaged in critical health care supply, among others, and common man—who maybe facing spikes in health care expenditure, all require a comprehensive targeted policy response, RBI Governor Shakitkanta Das said in an unscheduled announcement on Wednesday.

The special liquidity facility could help ramp up health infrastructure and services, making it a welcome move from the central bank, said Rijo M John, health economist and adjunct professor at Rajagiri College of Social Sciences. However, it does seem too little and too late, he said. “This, too, should have been done an year ago, or at least when India saw a fall in cases after the first wave, and should have ramped such infrastructure to battle a prospective second wave,” he said.

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