22 , May , 2020
By Divya Roy Choudhury (with inputs from PTI), New Delhi: Giving the real estate sector a ray of hope, Governor of The Reserve Bank of India (RBI), Shaktikanta Das, today in an unplanned announcement slashed interest rates, extended moratorium on loan repayments and allowed banks to lend more to corporates in an effort to support the economy which is likely to contract for the first time in over four decades. He told that the MPC had voted to maintain its accommodative stance, implying more rate cuts in the future if need arises.
He also added, "After extensive discussions, the MPC voted unanimously for a reduction in policy repo rate and for maintaining the accommodative stance of the monetary policy as long as necessary to revive growth and to mitigate the impact of COVID-19 while ensuring that inflation remains within the target”
The measures taken includes:
• The benchmark repurchase (repo) rate was cut by 40 basis points to 4 per cent
• The reverse repo rate was reduced to 3.35 per cent from 3.75 per cent
• 3 months moratorium on monthly installments to home and auto buyers
The measures will not only revive the industry, but will also help those who are paying EMI’s or using credit cards thus reducing the financial stress spread across the nation. The move will not only help developers but also homebuyers who have been under extreme pressure due to the prolonged lockdown which has impacted their income. Cheaper home loans will motivate the buyer to invest. What remains questionable is the quick implementation of these measures. Many of the developers and housing societies have welcomed the move by RBI.
Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, ASSOCHAM – National Council on Real estate, Housing & Urban Development said, “Now the situation for homebuyers might improve further as home loan interest rates are expected to come down further. People, who have decided to buy a home during the lockdown period will take a quick decision if banks pass on the benefit. Steps by the RBI are aimed at easing the economy. Affordable housing will benefit the most as the buyers of this segment are very particular about the EMIs. With historically low EMIs, people will go out to buy and thus increase the demand. Now government has to come out with steps to help the developers working in this segment so that projects can be completed without any hindrance.”
Ecstatic with the announcement, Prateek Mittal, Executive Director, Sushma Group stated, “We welcome this announcement by the RBI governor to reduce the repo rate by 40 bps to from 4.4 % to 4 %. Holding such a prominent position in in building the country’s economy, the realty sector will garner extensive benefits and the reduced repo rate will hugely support the buyer and boost the demand. Along with that the extended term loan moratorium period will provide the relief towards liquidity for developers to focus on faster execution of projects.”
The RBI supplemented the interest rate cut by extending by three months the permission given to all banks to give a three-month moratorium on payment of monthly installments on all outstanding loans, providing relief to home and auto buyers as well as real estate sector where construction activities are already at a standstill. Also the moratorium on interest on working capital was also extended by three months. Also, interest accumulated for the six-month moratorium period can be converted into a term loan.
Amit Modi, President-Elect CREDAI Western UP and Director ABA Corp quoted, “RBI’s recent announcements will further provide more relief to several Indians who have been forced to sit home in the wake of the novel coronavirus outbreak, but first, all the banks need to make sure that there is a quick transmission of the announced rate cuts to the end consumer, else the whole effort will be futile. We also wholeheartedly welcome the extension of 3 month moratorium on EMIs till 31 August and this should be applicable right away to bring relief to millions of homebuyers across the nation. We feel that RBI and the Government should proactively make sure that these benefits reach the end consumer, especially now that there is a 40 basis point cut and in the cash reserve ratio to ensure sufficient liquidity in the system.”
Further, bank exposure to corporates has been raised to 30 per cent of the group's net worth from the current limit of 25 per cent, a move that will allow lenders to give larger loans to companies. In its first official forecast for economic growth, the central bank has said the gross domestic product (GDP) is likely to contract in FY21 (April 2020 to March 2021).
Uddhav Poddar, MD, Bhumika Group advised that RBI should allow a onetime restructuring of loans. He said, “We welcome the further reduction of policy rates by 40 basis points announced today, with this round of reduction the lending rates are like to be at the lowest in 10-15 years. The extension of loan moratorium by another 3-months will help a vast majority of people tide through this period. However, we were expecting RBI to allow a onetime restructuring of loans seeing the pain across sectors, and we hope to hear some announcement in that regard soon”.
Talking about the execution of the measures announced, Harvinder Singh Sikka, MD, Sikka Group, told, “This time it is likely that banks will transmit the benefits to customers quickly as RBI is likely to keep a watch on it. In the current scenario it was important to take steps that can make the economy start recovering. The latest announcements indicate that RBI is likely to ease its monetary policy to financial system. Banks also should take a leaf out of this and extend loans to real estate sector, which in turn will play a role in the economy growth”.
Das also added that headline inflation may remain firm in the first half of the year and may ease in the second half. Inflation may fall below 4 per cent in the third or fourth quarter of the current fiscal, according to the Governor. This is the second straight cut in interest rates in two months. On March 27, RBI had cut interest rates by 75 basis points.
Talking about the benefits of lower rates of interest on home loans, Vikas Bhasin, CMD, Saya Homes, said, “RBI on its part is showing seriousness towards the health of economy. Now we hope that banks should pass on the benefit to the buyers in quick time. The demand for homes will increase further as home loan interest rates will come down to a historic low. It is good news for the real estate sector.”
Dhiraj Jain, Director, Mahagun Group is also opined that the measures taken by the RBI will help the demand to go up. He said that after the latest announcement by the RBI we expect the demand to go up. The fence sitters will have no better time to buy then the current period. People have already assessed the importance of owning a home, which was clear from the bookings during the lockdown period. The government must now step forward and give relief package to the sector so that things move smoothly.
How we treat the disaster caused by Covid-19 in coming months will play a pivotal role as there can be further measures that will be required from the government. The central bank will remain vigilant and in battle readiness to address dynamics of unknown future arising from COVID-19 outbreak. Pro-active measures like this will not only save the economy but will also re-generate the lost hope amongst various industrial sectors and the common man.
