RBI’s measure to infuse additional liquidity to boost healthcare infrastructure: ICRA

Loan tenor being capped at three years could impede availing the facility given that most industry players have a relatively longer asset pay-back period

The RBI has announced an on-tap liquidity window of Rs 50,000 crore with a tenor of up to three years, that can be provided by banks for lending support to entities such as hospitals, diagnostics, pharmacies, pharmaceutical companies or importers, medical oxygen manufacturers and suppliers and other operators involved in the critical healthcare supply chain. This has been done to ease the liquidity position and financial constraints being faced by these emergency healthcare service providers, consequent to the significantly higher load on these entities in the recent weeks.

While the RBI measures are aimed at easing the liquidity stress on the healthcare system, the pace of deployment of these funds towards enhancing capacities to cater to the high number of infections will be a key monitorable going forward. Nevertheless, given that banks are being incentivised for quick delivery of credit under the scheme through the extension of priority sector classification to such lending up to March 31, 2022, the pace of disbursements of these loans might be faster than usual. Furthermore, the availability of these funds could result in increased capacities and improved healthcare infrastructure, a long-term positive for the Indian healthcare industry.

Mythri Macherla, Assistant Vice President and Sector Head, ICRA said, “The RBI’s move to bolster liquidity is expected to provide immediate liquidity support to entities such as vaccine and oxygen manufacturers, and small-medium scale pharmaceutical companies looking at enhancing their capacities. However, some industry players may not prefer availing a loan under this structure, given the tenor cap of three years, as against a typical payback period of 5+ years.”

Kapil Banga, Assistant Vice President, ICRA said, “The facility will enable the players in the healthcare sector to access the much-required funds at a low rate of interest, which will aid the capex and investments in the sector, improve the accruals, the liquidity position and the debt protection metrics.”

ICRA rates 63 entities in the healthcare sector, a majority of which are in investment grade. ICRA upgraded 12 entities in FY2021, while three entities were downgraded. Currently, one entity is on a negative outlook.