By Accommodation Times News Services
RBI in its regular exercise to control the economy have reduced Repo Rates.
On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:
- reduce the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect;
- keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL);
- continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
- continue with daily variable rate repos and reverse repos to smooth liquidity.
Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 7.75 per cent.
However, housing Finance companies and NBFC engaged in the housing finance business may not reduce it since it is indicative and not an mandate by RBI. In the past when in spite of RBI warning banks and NBFI to reduce interest on home loans, housing financier institutes have been keep it high to make greater profits. Though the Apex bank have relaxed Repo Rates on which banks can borrow from RBI, Banks are rich in funds and own funds and now ECB, can sustain at current level of Housing Finance interest. It is indirectly cartel to not to reduce housing finance interest.
Real Estate Industry though celebrating RBI move, in practice, the advantage may not be passed on to borrowers or even if it is passed , it will be negligible reduction in EMI. Or they will use it for phonic offers, may be for first two to three years for new clients only.
The real estate industry welcomes the announcement of Dr. Raghuram Rajan,RBI Governor on a cut of 50 basis points in its repo rate as an excellent move said, Mr. Rajesh Prajapati, MD, Prajapati Constructions.
“This is a much needed rate cut by RBI. They cut repo rate by 50 basis points to a 4 year low of 6.75%. This move comes at right time and hope banks will pass on the benefit to customers immediately, especially as we are soon going to celebrate festive season of Dussehra and Diwali. We are sure it will stimulate demand for housing as EMI’s will come down.
This is a rather pragmatic decision and we hail the reduction of risk weightage to housing sector. This has been long pending demand from the industry”, added Mr. Prajapati.
As opposed to the market’s expectation of a 25 basis points cut, the RBI has delivered an astounding 50 basis points reduction. With this, it has clearly abandoned its cautious baby-steps approach and assumed a bolder stance, obviously because the current economic fundamentals provide it with the room to do so. Given the magnitude of this step, I do not think any further rate cuts are likely in this financial year, especially since theRBI foresees a moderate growth in inflation rate in the interim months. For the affordable housing sector, the outlook is nevertheless bright, since the RBI governor has made provisions for lending to this sector to become less stringent and broader in scope. said Anuj Puri, JLL
Some of the industry reactions :
Mr. Rohit Poddar, Managing Director, Poddar Developers
This is a welcome and overdue move – however it will not be effective unless the banks pass on the reduction in repo rate to the home loan customer and also to the developer in the case of affordable housing. Both these rates have not come down in conjunction with the reduction in repo rates and there is still a large gap between the same. The large gap should not be used by banks to manage their NPA’s – defaulting promoters should be brought to book – and instead the reduction should be passed on to where is it actually intended and required.
Mr. Srinivasan Gopalan, CEO, Ozone Group
This is a great move by RBI which will hopefully dilute the negative sentiments. We are certain that this decision will give a boost to the realty sector and mortgages as they are a significant portion of sales. It will help the current government come closer to its agenda of ‘Housing For All’.
Mr. Rahul Saraf, Managing Director, Forum Projects
The revised repo rate brings in a wave of potential benefits for the economy. As developers we welcome this air of change and are hopeful of bridging the demand supply gap. This move will not only help developers initiate more projects at favorable capital but also create wider offerings benefiting home buyers.
Mr. Navin Makhija, Managing Director, Wadhwa Group
We welcome this decision of the RBI. We are hopeful that this move will enhance the purchasing power of the buyer, especially the fence sitters. Since investments in real estate are significantly done through loans, this will certainly ease the buying process and is a win-win situation for the buyer and developer.
Mr. Manoj Paliwal, CFO, Omkar Realtors & Developers
RBI’s move to cut interest rate by 0.50 per cent is a good but small move in the right direction. The move will surely bring in the much needed fillip to the housing sector and economy at large. With this move we will see more and more fence sitters to start investing in realty projects. This move will no doubt infuse more liquidity into the system much needed for real estate sector. Secondly, keeping in mind the mission of the government of housing for all by 2022, the move of the apex banks to reduce the risk weights on affordable housing applicable to lower value will also benefit the sector.