The Reserve Bank of India’s move on Wednesday to step in and join the fight against the second wave of the pandemic through the announcement of measures aimed at alleviating any financing constraint for those impacted, including the health-care sector, State governments and the public, is a welcome and timely intervention. The furious pace at which new COVID-19 infections and fatalities have been mounting in recent weeks has not only overwhelmed the nation’s health infrastructure but has begun to significantly impair economic activity, just as the economy appeared to have turned the corner from last year’s debilitating contraction. “The fresh crisis is still unfolding,” Governor Shaktikanta Das said in his unscheduled address, acknowledging the challenge ahead. Stressing that it is imperative to both save lives and restore livelihoods, Mr. Das proposed a calibrated response, mooting a ₹50,000 crore term liquidity facility to boost credit availability for ramping up COVID-related health-care infrastructure and services. Lenders have been urged to expedite lending under this ‘priority sector’ classified scheme to entities including vaccine manufacturers, hospitals, pathology labs, suppliers of oxygen and ventilators, importers of COVID-related drugs and logistics firms. And although Mr. Das said the scheme would also cover patients requiring treatment, he failed to spell out how those most in need of financial assistance to cover their surging medical bills could borrow the funds. In directing the flow of credit to the sector most in focus at the moment, the RBI has signalled it is cognisant of the burden on health-care and allied providers. However, how much lending capital-stressed banks would be willing to write into their ‘COVID loan books’ remains to be seen.
The central bank’s focus on small borrowers including unorganised businesses and MSM enterprises, both through enhanced provision of credit via small finance banks and a fresh resolution framework for existing borrowings, is also heartening as these economic participants were already among the worst-hit during last year’s contraction. However, the norms laid down for resolution including the proviso that only those borrowers who had not already availed of restructuring assistance and whose loans were ‘standard’ as on March 31, 2021, would be eligible for fresh resolution lays an onerous burden on those that the RBI itself admits are the ‘most vulnerable’. Mr. Das was also unreasonably sanguine about the economic impact of the second wave, even as he granted that “high frequency indicators are emitting mixed signals”. The RBI’s position that the dent to aggregate demand is likely to be only moderate is based on the fact that so far this year, the restrictions to contain the spread of the virus have been largely localised. With more and more voices from the Opposition to top industry groups urging a nationwide lockdown to break the chain of transmission, Mr. Das may need to very quickly revisit his assumptions.
