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

The Reserve Bank of India announced a term liquidity facility to ease access to emergency health services, and quick delivery of credit, among other measures, to help the economy tide over the severe second wave of Covid-19 infections.

The central bank opened a Rs 50,000-crore on-tap liquidity window with tenor of up to three years at the repo rate till March 31, 2022, Governor Shaktikanta Das said in a media briefing on Wednesday. That will boost provision of immediate liquidity for ramping up Covid-related healthcare infrastructure and services in the country.

Banks are also being incentivised for a quick delivery of credit under the scheme through extension of priority sector classification to such lending up to March 31, 2022. These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier.

Banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI. The lenders are expected to create a “Covid loan book” under the scheme, where they will be able to provide funding to borrowers, including vaccine manufacturers, importers of vaccines and medical devices, hospitals and dispensaries, pathology labs, manufacturers of oxygen cylinders, logistics firms and patients under treatment.

By way of an additional incentive, such banks will be eligible to park their surplus liquidity up to the size of the Covid loan book with the RBI under the reverse repo window at a rate which is 25 basis points lower than the repo rate or, termed in a different way, 40 basis points higher than the reverse repo rate.

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, Das said.

Rijo M John, health economist and adjunct professor at Rajagiri College of Social Sciences, however said while any such kind of liquidity creation would help ramp up health infrastructure and services, making it a welcome move from the central bank, it does seem too little and too late. 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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