Banks Get Eager to Provide Loans to COVID-19 Vaccine Manufacturers

As per the banking industry sources, a group of both public and private sector banks has granted a line of credit of up to Rs 6,000 crore to a Pune-based Serum Institute of India (SII), the largest vaccine manufacturer in the world. SII is currently manufacturing the Covishield vaccine. 

Banks are lining up to offer loans to manufacturers of the COVID-19 vaccine after RBI unlocked a liquidity tap worth Rs 50,000 crore. This amount is available ‘on-tap’ for lenders concerning the healthcare sector.

As per sources, SII has already drawn Rs 1,200 crore from the sanctioned amount. Bharat Biotech, a Hyderabad-based manufacturer of Covaxin, has also been sanctioned with a credit worth Rs 1,000 crore line.

RBI has relieved the on-tap liquidity facility by permitting banks to group such loans under the priority sector lending. Banks will need to lend 40% of their overall lending to sectors that come under the priority sector lending. Banks will be able to get loans via this window at a repo rate of 4% until March 31, 2022.

Under this scheme, banks will render fresh lending support to several entities, including vaccine manufacturers, suppliers and importers of vaccine, priority medical devices, hospitals, pathology labs and diagnostic centres, suppliers and manufacturers of oxygen and ventilators, among others.

The regulator has instructed banks to generate a COVID loan book. The deal has been further eased since banks will qualify to place their surplus liquidity of up to the size of the COVID loan book with RBI under the reverse repo window at a 25 bps lesser than the repo rate – this move is seen as a margin accretive.

Bankers believe that currently, firms that come under the healthcare sector are one of the most reliable customers; however, these are cash wealthy firms too; therefore, they might not require that amount of funding. Amidst the times where bank credit growth remained dull, this line of credit offered by RBI comes across as a good opportunity for lenders to grow their business.

Credit growth concerning commercial banks in the last financial year was 5.6% year-on-year compared to 6.1% in the previous year. In the previous financial year, banks invested in government securities rather than providing loans which was not the scenario anytime in almost two decades, excluding 2016 – the year of demonetisation.

As per the latest RBI data, bank credit has lessened by Rs 89,000 crore in the current financial year, when compared to Rs 97,445 crore contraction in the same period of the last financial year.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in