BoB allots Rs 500 cr to Serum after RBI liquidity tap for healthcare firms

SBI, HDFC Bank among lenders gearing up to support companies involved in mitigating Covid-19 outbreak.

Banks have changed gear to cater to healthcare after the Reserve Bank of India on Wednesday opened a Rs 50,000 crore liquidity tap exclusively for companies involved in providing vaccine, oxygen, ventilator etc as the country fights a ferocious second wave of Covid-19 pandemic.

At least one lender, Bank of Baroda (BoB), has sanctioned Rs 500 crore to Serum Institute of India (SII),– which is producing Covishield, the vaccine against coronavirus infection.

State Bank of India (SBI), the country’s largest lender, has sanctioned a credit line to Bharat Biotech, which produces the Covaxin inoculation, recently, a top bank official said, without disclosing the amount of the sanction.

“Bank of Baroda has sanctioned Rs 500 crore to Serum Institute today,” an official with direct knowledge of the development told Business Standard late evening Wednesday.

On Wednesday, RBI announced a Rs 50,000 crore on-tap liquidity to banks for lending to companies in the healthcare sector to ramp up the healthcare infrastructure. These companies have been scouting for funds to increase capacity as demand surged after large scale spread of infection.

Banks will get the funds from RBI, for three years, at repo rate which is at 4%. The window will be available till 31 March 2022. “Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers; importers/suppliers of vaccines and priority medical devices; hospitals/dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and COVID related drugs; logistics firms and also patients for treatment,” RBI governor Shaktikanta Das said while announcing the scheme.

An email sent to Bank of Baroda and SII remained unanswered till the time of publishing the story.

RBI said banks are being incentivised for quick delivery of credit under the scheme. The regulator has allowed such loans to be classified as priority sector loans up to March 31, 2022. Asking banks to create a COVID loan book under the scheme, RBI said 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 40 bps higher than the reverse repo rate.

“This Covid loan book worth of funds parked at RBI is expected to earn 40 bps extra as an incentive. It is margin accretive for banks,” ICICI Securities said in a note to its client.

Bankers said these incentives will encourage banks to lend to the companies in the healthcare sector. The healthcare which is reeling under huge pressure following record surge in the second wave of Covid-19 pandemic, such a move is aimed at easing the stress in by beefing up supply of facilities like ventilators, oxygen concentrators, and also enhancing vaccine production capacity quickly.

Some of the private sector lenders like HDFC Bank already created a team of bankers to exclusively focus on the healthcare sector, under its commercial banking vertical. The commercial banking vertical, caters to the MSME sector which the lender has described as the 'backbone of the economy'. The largest private sector lender of the country has tied up with a host of players in the healthcare sector ranging for hospital chains to manufacturers of healthcare equipment to extend credit lines.

According to bankers, till a few years back healthcare sector, particularly healthcare equipment manufacturers was not a preferable sector but the situation has changed completely now.

“They are the best customers in today’s scenario,” said a banker referring to the vaccine manufacturers. India is lagging in vaccinating its citizens as production is not matching up demand as citizens are turning desperate to get a jab amid ferocious rise in infections and mortalities.

“The macro impact of the scheme can be gauged from the fact that ₹50,000 crore is roughly 9% of India’s total health expenditure of ₹ 6 lakh crore under private final consumption expenditure in 2019-20. A direct support to the sector will generate total output demand of roughly ₹80,000 crore. The sectors to benefit include organic chemicals, rubber, plastics among others where the limit utilisation is close to 55%,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India said in a report.