#BQDebates: How Should The ‘Covid Loan Book’ For Healthcare Be Deployed?

On Wednesday, the Reserve Bank of India announced a special liquidity facility of Rs 50,000 crore to enable banks to step up lending to the healthcare sector, and incentivise banks into creating a ‘Covid loan book’. This measure has been taken toward meeting the emergency funding needs of hospitals, vaccine manufacturers, medical equipment importers, and even patients, as India continues to be hit by record Covid-19 infections and deaths.

In the 15th month of India’s battle against the coronavirus, what’s the best way to deploy this credit?

- Ameera Shah, Managing Director, Metropolis Healthcare

This is obviously a welcome policy by the Reserve Bank of India.

Frankly, this aids healthcare infrastructure expansions which, provided the liquidity (was there), could actually have come a year ago. That could have really helped the country build up the capacity in time. However, the policy is always welcome.

I just hope that there are a few things that are clear about the approach.

One, I hope the fine print does not restrict the borrowing very significantly because that would obviously create a big challenge in terms of — who will have access, how much access, how fast that credit will flow through, and therefore how fast it will go to capacity building. The need is today and while they have incentivised banks to create and give this credit, I hope that the fine print is not restrictive. I would want to read the detailed fine print before making a detailed comment.

Second, I hope that the timeline being kept for this is not very short. Because of the unknown nature and lack of visibility for surges and waves of Covid-19 that have happened, it led to an inability by healthcare providers to actually do long-term investment at the appropriate phase. That’s because you don't know how long it's going to last. So, by the time you roll out a hospital, expanded testing facilities, a production unit to manufacture oxygen, that would be a minimum of a two-to-six-month window depending on what you're trying to build. If you don't have visibility on the requirement of Covid testing or products or anything else, it becomes a futile exercise. One of the things that we’ve been requesting the government is to work closely with the private sector and share their mathematical modelling for how Covid-19 is going to continue to move from here and in the last year as well. I think that would really help the private sector make their own plans for investment.

Assuming that somebody has the intent and keenness to make the investments, this credit flow will now be useful, but it is likely to be more toward the larger firms in healthcare who already have [credit] rating. It is unlikely that this credit will go down to the very small subset and the fragmented, unorganised sector. But even if it goes to the top firms of healthcare, I think that could help really increase capacity. In order for credit to get to smaller entities, I think equipment lending is an area that could benefit all segments of the industry, whether small or large. If equipment lending could be done in a better design that would really help. Even from a depreciation and tax perspective, I think that could be helpful.

If this lending is done quickly, if it’s not restrictive in nature and is given for a fair period of time, this helps. But let's suppose they say ‘okay we only want to give this to you till 2022’, then frankly, by the time somebody takes the credit, by the time they invest, and by the time the capacity that gets built, we’re already in 2022. So, a lot of it depends on those details.

While, of course, this is being done to fight Covid-19, I think the reality that everybody has seen is that India as a country has under-invested in its public healthcare infrastructure and private health infrastructure in the past 50-100 years. Changing that is imperative because there will be more pandemics and epidemics, Covid is not the last one of them. If we take a cue from some other countries and see what actually is essential for us is to build capacity because we don't know if the country will be hit by a third wave. In my opinion, a third wave is very likely because our vaccination programs will only kick off in July in full swing, considering the lack of current vaccines. Therefore, we will probably face a third wave, and even if we don’t, the point is that there are going to be many such incidents that are going to happen. We need to build capacity in advance. So, governments need to look at this as a more long-term plan in saying that, ‘look, let’s motivate the public and private sectors to really build capacity so that in the future when we get hit, we are not caught napping the way we have this time.’

Nachiket Mor, Ex-banker and former member of the RBI’s central board; healthcare policy researcher

It is my sense that while there could be a stable increase in demand for investment at the primary care level in the hospital sector, the current demand is not sustainable and is a bubble that needs more government and philanthropy support. Any significantly enhanced lending at this stage to the hospital sector for capital expenditures could result in defaults in the future. However, there appear to be significant opportunities to safely provide working capital finance and equipment finance for oxygen producers, hospitals, and for cylinders and tankers, particularly where the cylinders have multiple uses even later. Looking into what the TReDS platform needs to help in this market could prove to be useful.

In my view, the core challenge for lending has always been access and product design. While, at the margin, there is certainly some value to small reductions in interest rates, and increased activity from banks, the key to access, particularly for higher risk sectors, without compromising systemic stability has been with the non-bank finance companies. This crisis provides an opportunity, as we had argued in an earlier article, to place NBFCs on par with other corporate borrowers of banks, reduce the "pancaking of capital requirements", and allow a great deal of flexibility on product design to them.

NBFCs have cost structures, reach, and design capabilities in high-risk areas that banks just do not have, and forcing banks to do high-risk lending poses challenges for systemic stability. We need safer banks and riskier NBFCs — our policy thrust seems to be in the opposite direction.