RBI OFFERS MULTIPLE INDISCERNIBLE PLUSSES

The financial year 2016 – 17 was a true example of any developing economy which was marked with both ups and downs for the real estate sector. Where one could see the peak of the sector in the past couple of years during the festive season, suddenly after it, demonetisation crippled the sector to it’s bottom most for the upcoming two months. But with things like RERA, Smart Cities Mission and Housing for All in the pipeline, the sector is expected to perform better than ever. As one of the highest contributors to the country’s GDP and an end user to over 30 allied industries, very high hopes rest on this sector to perform well in order for the economy to revive. On top of it all, the Reserve Bank would always play a key role in deciding the fate of this sector through it’s bi – monthly monetary policy reviews.

With today’s decision in the monetary policy review, the Repo rate remains unchanged at 6.25 percent. However, the corridor under the LAF has been narrowed down to 25 basis points which makes the Reverse Repo rate stand at 6.0 percent. This adjustment under the LAF also means that the Marginal Standing Facility (MSF) also stands reduced at 6.5 percent basis the recalibration of MSF difference to 50 basis points above the Reverse Repo rate. Cash Reserve Ration (CRR) at 4 percent and Statutory Liquidity Ratio (SLR) at 20.5 percent remain unchanged. There are no direct benefits attached for the financial institutions but indirectly they gain a lot with the increase in Reverse Repo and reduction in the MSF, allowing them to lend to RBI at higher rates and enabling overnight borrowing at a lower rate.

Industry Reacts:

Manoj Gaur, President CREDAI-NCR & MD, Gaursons India Ltd.
It is great to see that the Reserve Bank has been so persuasive towards reduced lending rates in the market, specially from the end of Financial Institutions. Increased Reverse Repo rate would mean RBI withdrawing money from the market at a higher rate, hence filling the hands of the banks further. However, it’s on the part of the financial institutions to convert these indirect benefits into something substantial for the end users and promote healthy business environment in the market.

Gaurav Gupta, General Secretary, CREDAI - RNE
A recalibrated MSF standing reduced at 6.5 percent would mean that the overnight borrowing of banks from RBI would come at a lower rate giving a freer hand to banks at lending. However, some direct rate cuts could have been also beneficial in the short term for the realty sector because with the recent data release by RBI which states that HPI has picked up in the last calendar year would have allowed the realty sector to ride on improved sentiments from all corners of the economy.

Vikas Bhasin, MD, Saya Group
Also with global growth indicators showing signs of stronger activity in most of the Advanced Economies and further indicators pointing to a modest improvement in the macroeconomic outlook of the country might have prompted the apex bank to keep a cautious approach towards any major changes in the key rates. However, it was very heartening to see that the RBI has been very accommodative towards reduced lending rates in the market and hence has passed on benefits indirectly to the government allowing them the necessary room to work upon.

Dhiraj Jain, Director, Mahagun Group
In case of a low interest rate environment surrounding the economy and cash available in abundance, the risk of inflation moving up exists. Hence, the RBI doesn’t reduce the rates until it has been fully convinced about the inflation control; as even the inflation had been on a rise for the fifth straight month till February but has taken a downward trend in March which would be kept under strict vigil the next policy review allowing them the necessary cushion to work further on the key rates. Till then, even the financial institutions should also devise ways to offer indirect benefits to borrowers.

Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group
This is not a surprise move by the RBI as everyone was expecting a stagnant approach towards the key rates. The market has been gaining stability and post the union budget, further ease could have been thought off on the cards. Even though the RBI has not provided any rate cut this time, fresh home loan borrowers should not worry much as they may still witness lowered EMIs because amidst intensifying competition among the lenders, the banks might be forced to start cutting down the interest rates themselves.