Reactions to RBI Monetary Policy 

RBI opted for status quo on benchmark interest rate

Reactions to RBI Monetary Policy 

Reserve Bank of India (RBI) on February 6, 2020 opted for a status quo on benchmark interest rate. The six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, for the second meeting in a row, kept repo rate unchanged at 5.15 per cent. Here are reactions received from different sections:

"The RBI left the repo rates unchanged on the expected lines. There was wide spread expectation that the RBI may keep the repo rate unchanged because of spike in inflation in the last 2 months. Also the accommodative stance of the RBI and the decision to support growth going forward were as per market expectations. The CRR exemptions against the  loans given to stressed sectors and one time restructuring for MSME should boost investor confidence and drive growth going forward. Also with the introduction of linking loans given to medium enterprises to an external benchmark should ensure better and faster transmission of rate cuts going forward."
- Mr. Raghvendra Nath, MD of Ladderup Wealth Management

“High retail inflation forced the MPC to hold repo rate. However, the RBI used other instruments available at its disposal to boost growth. Firstly, the RBI announced long term repos in the  1 to 3 yr window up to Rs 1trn. This led to short term yields falling by 15-20 bps and it was as good as a rate cut. Secondly, it announced that banks won’t have to include incremental loans to auto, housing and MSME sectors during Jan-Jul 2020 in their NDTL for CRR calculation. This again is like a marginal and temporary CRR cut and is likely to boost bank credit to the said segments. These measures together are like a stimulus for the economy although the repo rate was kept unchanged.”
- Ms. Anagha Deodhar, Economist, ICICI Securities

“The accommodative stance of the RBI in the wake of the inflationary trend has simply aggravated the woes of the realty sector, which is grappling with liquidity. It is yet another shocker after a disappointing Budget, which will have a rippling effect on the sector unless the RBI takes up concrete moves to stem housing demand by the supply of cheaper loans and taper inflation. The RBI had no other way than to extend some relief to the realty sector by allowing not to downgrade realty loans for genuine delays and granting additional time for repayment. While it will give a window to manage scarce finances for a certain period, it will not completely ease the sector's financial stress. Earlier, the repo rate reductions did not translate effectively into the banking system. Now, the RBI must look into this issue for boosting housing demand. ''
- Mr. Rajan Bandelkar - President, NAREDCO West

“The decision by RBI to allow banks to deduct incremental lending that banks provide to productive sectors including residential real estate from net demand and time liabilities for the purpose of CRR is a welcome move. It implies that banks will have to more funds and it will also encourage them to lend more particularly to productive sector, which will have significant impact both on GDP and employment generation.”
- Mr Manoj Gaur, MD, Gaurs Group and Chairman, Affordable Housing Committee, CREDAI

“The status quo maintained by RBI is on the expected lines. But, the apex bank’s decision to allow banks to deduct incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs), from their net demand and time liabilities (NDTL) for maintenance of cash reserve ratio (CRR) will primarily mean that banks will have to deposit lesser amount with RBI as CRR, which will increase their lending capabilities. At the same time, it would also prompt them to lend more to productive sectors having multiplier effects and help in both higher GDP growth as well as employment generation.”
- Mr Dhruv Agarwala, Group CEO,, and  

“The rate cut would have been the need of the hour to provide the much-needed boost to the real estate and to facilitate growth of the sector. However, the real estate, in particular, has been benefiting through policy interventions to stabilize the market. The country has a large number of potential buyers and any rate cut would have incentivized to improve their confidence. We look forward to the RBI’s decisions to lower rates in the future that will contribute to strengthening the GDP growth and create a robust economic framework.”
- Mr Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM 

“It’s a welcome move and now that it solves the banks liquidity issues, they will be encouraged to pass on the rates to end consumer even more proactively. Since it’s the liquidity in the economy that will upstart the growth and employment cycle.”
- Mr Amit Modi, Director ABA Corp & President Elect CREDAI Western UP

“This was a long pending demand of the industry and we are thankful to RBI for permitting extension of commencement date of projects, which are stalled for reasons beyond the control of developers by one year without classifying it as NPA. Needless to say, the move will help the commercial sector immensely as it means developers besides getting additional time to complete the project, may also become eligible to raise funds. The move will also help banks as they will have to shell out lower amount towards provisioning.”
- Mr Ashish Bhutani, CEO, Bhutani Infra

“Many of the projects including some commercial projects at times get stuck for reasons on which developers have little or no control. In this context, we welcome the decision of the apex bank to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate by another one year without downgrading the asset classification. This means that such loans will not be classified as NPA and this would benefit commercial real estate segment immensely. The move will also help banks as they will have to do lower provisioning, thus increasing their capability to lend. The industry will eagerly await detailed guidelines on it.”
- Mr Abhishek Bansal, Executive Director, Pacific Group

“We welcome the Decision by the apex bank to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate by another one year without downgrading the asset classification and no such loan will be classified as NPA. This move will benefit commercial Real Estate Sector vastly, specially the projects which are nearing completion and delays were outside the control of developers. This shall also motivate the  developers to push the completion with in the extended period of  one year, it's a great step in the right direction giving support to Reality sector and measures like this will surely help to pull the industry out of the toughest phase.”
- Mr Harinder Singh, Chairman and Founder Realistic Realtors 

“RBI’s repo rate has been kept unchanged at 5.15 per cent  and reverse Repo rate is also unchanged at 4.90 per cent is a welcome decision and appreciated by Indian Chamber of Commerce.
Holding the repo and reverse repo rate same comes in consonance with the objective of having “accommodative” stance for reviving growth. It will also stabilize the current investment amid the rising retail inflation and boost consumption. As a Chamber we expect that the holding of the rate will complement the recent measures taken by the Government to boost the economy. The policy will be conducive to achieve the medium term target for consumer price index (CPI) inflation of 4% within a band of +/2 per cent alongside growth. The decision of holding the rates same twice in a row is taken to control the surge in inflation.”
- Mr. Mayank Jalan, President, Indian Chamber of Commerce (ICC) 

“We believe RBI Policy announced today will ease the norms to give relief to commercial real estate developers. RBI’s decision about the extension of Date of Commencement of Commercial Operations (DCCO) of project loans for commercial real estate, will provide comfort to companies developing such projects and also their lenders. It will benefit the banks as they will not need to downgrade the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector”.
- Mr. Siddhartha Mohanty, MD & CEO of LIC Housing Finance
“RBI has continued to keep the  accommodative policy stance. It  has already cut the policy repo rate by 135 bps since Feb last year. However, banks have not passed the rates cut fully to customers. The decrease in requirement of cash reserve ratio for housing, auto and MSME loans for 6 months is a positive move which is likely to result in a better lending environment.”
- Mr, Mohit Ralhan, Managing Partner & CIO, TIW Private Equity

“The central bank has kept the repo rate unchanged at 5.15% and maintained its accommodative stance in the backdrop of relatively high inflation levels and recent fiscal measures. The recently announced Budget, which focusses on improving rural incomes and increased spending on infrastructure, is expected to reflect in the next few quarters. The real estate sector showed resilience with the residential sector across the top seven cities recording a growth of 6% y-o-y in the number of units sold in 2019, in spite of muted consumption trends. Moreover, the Government’s focus on affordable housing through a slew of measures like extension of tax holiday and the benefit under section 80 EEA is expected to have an over-arching impact on the homebuyer sentiment.
The real estate sector has been in particular benefitting from rate cuts which were transmitted to some extent through mortgage rates and repo linked loans to end consumers. This was reflected in the 6% y-o-y growth in residential sales in 2019. Moreover, the recently announced extension of benefits to both developers and home buyers for affordable housing in the Union Budget is expected to maintain the growth momentum in the sector. The RBI’s move today to ease rules for projects delayed for reasons beyond the control of promoters by one year will provide the much needed elbow room for developers.
The repo rate breached the 10-year low mark in October, 2019 at 5.15%. The past trends indicate that further rate cuts would have been ineffective in reviving growth. The revival of economic growth depends on the balance between fiscal and monetary policies which weigh on the consumer sentiment.
Although the inflation has breached the target levels, it has been a supply driven trend and is expected to stabilize in next few quarters. Moreover, there are early signals of economy getting back on track as suggested by the improving manufacturing and services Purchasing Manager’s Index, core sector and Index of Industrial Production. Hence, it was a prudent step to wait and watch by holding the repo rate constant.
RBI’s decision to maintain repo rates is driven by the fact that inflation has been rising continuously in the past few months and reached 7.35% which is the highest since August 2014. Although the overshooting was on the back of volatility in food prices, the mandate to keep inflation in the target zone could be at risk if the RBI resorted to further easing of repo rates. Moreover, the food prices have been softening and are expected to stabilize in the next few months.”
-Mr. Ramesh Nair CEO & Country Head, JLL India 

“Commercial Real Estate needs support on the liquidity front to ensure smooth sailing across the year of 2020. With the RBI maintaining a status-quo, much more is expected from the government to ensure liquidity to this category. Ensuring banks allow commercial property developers additional time to meet repayment obligations, without downgrading the asset class, in case a project gets delayed for reasons beyond their control. The industry has been demanding a single-window clearance, till such time that the same is not put into effect, allowing commercial projects an extension of at least a year for the date of commencement and availing of the project loans should be looked at. Announcing exemption of rent from, any one of the owned commercial office of 500-1000 sq. ft. or GST rebate on such a property could go a long way in luring investors and helping fuel demand.“
-Mr. Khetsi Barot, Director, The Guardians Real Estate Advisory

“RBI policy is quite progressive and forward looking. Notwithstanding unchanged policy rates, introduction of Term Repo opens up ways to transmit the signal rate changes. Measures like DCCO extension for realty, MSME window expansion for restructuring and CRR exemption for incremental funding to key segments are growth oriented and promise to provide the much needed impetus to bank lending. As such, markets have given a Thumbs up to the new initiatives.”
- Mr A. K. Das, Managing Director & CEO, Bank of India 

“The announcement is on expected lines, keeping in mind the inflation and the key policy rate reduction of 135 basis points, that was announced across last year. The banks should, now, be pushed to pass on the benefits of the previous rate cuts that were announced by RBI. The same is imperative to bring down the borrowing cost for the home buyer and provide impetus to demand generation across the category. After a budget that was perceived to be neutral, the revival of credit growth needs to be the government’s top priority, as it will play a significant role in demonstrating a resurgence of growth in economic activity.”
- Mr. Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory