Status check: Banks are yet to build up a robust 'Covid loan book'

Banks are yet to actively tap into the Rs 50,000-crore special liquidity window offered by the Reserve Bank of India (RBI) for the health sector, as well as the Rs 15,000-crore window for the contact intensive sectors such as hotels and tourism.

The RBI came up with the scheme on May 7, mainly for the health sector. It subsequently increased the amount to include contact intensive sectors to ease the hardship. Banks were allowed to include the lending amount, termed ‘Covid book’ in their priority sector obligation. The RBI had said banks can park an equivalent amount of their Covid loan book with the central bank’s reverse repo window and earn a rate of 25 basis points lower than the repo rate.

Data for how much has been lent so far is not directly available, but it can be gauged indirectly sifting through the utilisation of the incentive scheme for banks.

Data shows that till July 2 banks have parked Rs 3,097 crore in that special reverse repo window. In the normal course, margin-hungry banks wouldn’t have let this opportunity go. Either they have not been able to lend enough under the scheme, or the banks that have lent aggressively did not have excess liquidity to park.

Analysts say the last possibility is remote as banks that do not have enough liquidity would not want to lend to these stressed sectors anyway, even as they are part of their obligatory priority sector loans. A senior banker, however, pointed out that it was too early for banks to start lending to the sectors.

“It is too early, the RBI gave banks 30 days’ time to have their board-approved policy and to issue their own circulars. And all of them issued their circulars in the first week of June. The lending has not started in earnest yet, but it will,” said a banker requesting anonymity.

Besides, companies in the sector have not yet started asking for loans in a large number, the banker said. Growth is still the primary concern in the economy and to facilitate that, the central bank is ready to look through sticky inflation for now. The impact was most felt in the form of shrinking consumer dem­and. Activities have just started picking up as lockdowns ease, but it is still fragile.

The year 2020-21 witnessed a severe contraction of 7.3 per cent and the central bank expects 9.5 per cent growth for the current fiscal year, betting that the effect of the pandemic will remain contained in the first quarter.

“The economy needs to reach and exceed the pre-pandemic level of growth,” RBI governor Shaktikanta Das said in an interview with Business Standard last week.

In this context, the affected sectors are not ready to borrow more from banks and increase their debt burden. Unless demand returns for tourism and services, or the health sector needs to ramp up its operations faster, the loans will be not taken in a hurry.

However, banks are confident of utilising the full funds in the coming months. The scheme runs till March 31, 2022, and banks will be eager to use the funds to fulfil their priority sector targets as well as earn extra rates parking their Covid loan book equivalent with the RBI for a preferential rate, analysts said.