Indian Realtors hail Indirect RBI Bonanza

Reserve Bank of India

By Asit Manohar

On account of increase in Reverse Repo and reduction in the Marginal Standing Facility (MSF), allowing free lending by various banks at a lower rate, Indian realty developers have hailed the bi-monthly monetary review of the Reserve Bank of India (RBI) citing the move would address the monetary crisis faced by developers. However, some direct rate cuts could have been also beneficial in the short term for the realty sector, they argued.

Gaurav Gupta, General Secretary, CREDAI – RNE said, “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.” Gupta said that some direct rate cut would have allowed the realty sector to ride on improved sentiments from all corners of the economy.

Placating the fresh home loan borrowers Rajesh Goyal, Vice President CREDAI-Western UP and MD, RG Group said, “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.”

Standing in sync with Gaurav Gupta of CREDAI; Manoj Gaur, President CREDAI-NCR and MD, Gaursons India said, “It is great to see that the Reserve Bank has been so persuasive towards reduced lending rates in the market, especially 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.”

Hailing the RBI move Vikas Bhasin, MD, Saya Group said, “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.”

Elaborating upon the vision behind this move of the central bank Dhiraj Jain, Director, Mahagun Group said, “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.”

In its bi-monthly monetary policy review the RBI has kept Repo rate 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.