The Rs 50,000 crore liquidity window offered by the Reserve Bank of India (RBI) to banks under priority-sector lending to augment Covid-19 healthcare infrastructure will help raise treatment capacity, and availability of medicines and medical equipment, in India. Hospitals could be among the biggest beneficiaries as the incremental funding can potentially increase bed capacity in the country by 15-20%.

Loans under the scheme, for tenures up to 3 years, are available to banks at the repo rate till March 31, 2022. Such loans would also be classified under priority sector. Consequently, banks are expected to extend these loans below current interest rates for companies engaged in health care activities. These include makers and suppliers of vaccines and drugs; hospitals; pathology labs; suppliers of oxygen; makers of emergency medical equipment; logistics firms; and Covid-19 patients.

As many as 354 CRISIL-rated companies with aggregate bank exposure of Rs 40,000 crore will be eligible for such loans. Though pharmaceutical firms account for 68% of rated bank exposure, hospitals (~24% of rated exposure) are likely to avail majority of the funding available.

The borrowing cost of hospitals rated by CRISIL are 10.5-11.0%, and the new loans taken for expansion under this RBI scheme could be 300-350 basis points cheaper, leading to substantial interest savings.

Says Subodh Rai, Chief Ratings Officer, CRISIL Ratings, “Increased availability of funds at low cost will incentivise hospitals to augment beds, oxygen storage, ICUs and critical medical equipment. Even if half of the funding available is used to add hospital beds through brownfield expansion, it will mean ~5 lakh incremental beds, or 15-20% of India’s current capacity.”

In comparison, for entities in other health care related sectors such as pharmaceuticals, the capital requirements for enhancing production capacity of critical Covid-19 related drugs is not very high. Further pharmaceutical companies¹, owing to their strong credit profiles and availability of export credit facilities, have a relatively lower average cost of borrowing (8.0-8.5%). Thus, majority of pharmaceutical companies may not be keen to take on substantial debt under the RBI window to fund expansion.

Also, only a few companies are manufacturing Covid-19 vaccines and these have availed of government advances/ grants for funding their requirement of ~Rs 5,000 crore.

While incentives under the liquidity window are attractive, hospital firms would carefully evaluate decisions considering sustainability of demand and availability of critical resources such as manpower and equipment.

Says Anuj Sethi, Senior Director, CRISIL Ratings, “Augmenting healthcare infrastructure has challenges beyond capital requirements. Higher lead times for equipment and availability of qualified manpower are critical factors that can create bottlenecks. This is especially true in the case of enhancing production of critical drugs such as Remdesivir, where the outlay to increase the production capacity of ~7 crore doses is only Rs 200-250 crore, but lead times for ordering and installation of machines exceed a year.”

All said, it is still early for healthcare players to evaluate their expansion plans. There will be more clarity once banks and lending institutions announce their policies for loans, and eligible firms decide on capital spends.

¹ Based on an analysis of 200 CRISIL-rated pharmaceutical companies