RBI Monetary Policy: Industry Outlook

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The Reserve Bank of India’s Monetary Policy Committee (MPC) today announced a rate cut of 25 basis points, third time in a row, in its second bi-monthly monetary policy statement for FY 2019-20. The repo rate now stands at 5.75%.
The MPC also changed the stance of monetary policy from neutral to accommodative.

The Real Estate sector cheered the rate cut and believes that such positive initiatives will play a significant role in bringing down lending rates and in easing the liquidity crunch, possibly reviving the overall sector.

NewsBarons shares the views and expectations of leading real estate developers and other industry leaders on the announced rate cut.

A one-time roll over option could be a solution at the moment: Niranjan Hiranandani- NAREDCO President and Sr.VP Assocham

www.newsbarons.comA 25 basis point rate cut by the Reserve Bank of India would provide momentum to the market, but more needs to be done to address the issue of liquidity.The lending rate now stands at 5.75, and this is the third consecutive rate cut since February 2019.

We are happy with the rate cut. Buyers who are coming back after the GST rate cut announcement, on under-construction and affordable properties, would be encouraged further with the reduction in the bank rates. However we feel that it is basically not enough to address the issue faced by all the other industries. It is not about ‘Dil Maange More’, but more about the need of the hour.

The risk profiling of customers by banks have gone up and one needs to understand how banks would pass on the benefit of the rate cut to the ultimate customer.

Liquidity is very low as the borrowing cost is still very high. This liquidity crisis is taking a toll on the heath of the companies and further inflicting financial damage thereby affecting the credit rating of companies and industries. Unless things are passed down, the NPAs of the banks would pile up in the near future.

When the Lehman crisis took place in 2008, the Reserve Bank of India (RBI) helped the banks to tide over the crisis by coming out with a one- time roll over option. We expected a similar solution to the problem faced by the Industry.

The real gain can be realised only if banks pass on the benefits to actual homebuyer borrowers: Anuj Puri, Chairman – ANAROCK Property Consultants

www.newsbarons.comAs widely anticipated, RBI has once again reduced its key lending rate by 25 basis point. The lending rate now stands at 5.75, and this is the third consecutive rate cut since February 2019. Even though the Indian economy is perceived to be in the grips of a slowdown, the markets are quite bullish on Modi’s return to power with a thumping majority. This may eventually lead to mitigated risks in fiscal deficit – in all likelihood, it is sensing this that the RBI has made this rate cut.

As for the housing sector, this rate cut may send only send out positive notional signals – its real gain can be realised only if banks pass on the benefits to actual homebuyer borrowers. The apex bank will need to ensure that this actually happens at the ground level since there has been little evidence of such transmissions in the recent past.

In the current scenario bereft with rising NPAs and the ongoing NBFC crisis, things look quite bleak at the moment. The reason why most banks are not really able to pass on the benefits of RBI’s rate cuts is that their deposit rates are still very high. This ultimately makes reducing interest rates to borrowers unfeasible.

Nevertheless, this rate cut will only have any really significant impact on the housing market if and when banks reduce their lending rates to homebuyers.

The monetary policy decision to cut the policy rate is laudable: Ramesh Nair, CEO & Country Head, JLL India

www.newsbarons.comAs per the latest data by the Government of India, the economic growth has slowed down to a 20-quarter low of 5.8% during the last quarter of FY 2018-19. Also, the consumption has remained weak during the past several months due to the ongoing liquidity crisis, in spite of controlled inflation under 4%. These trends have propelled RBI to reduce the repo rate for the third consecutive time to 5.75% from 6.0%. Even on the global front, factors like trade tensions and expected global economic slowdown had a bearing on the decision. The change in policy stance to ‘accommodative’ is the much-needed measure to boost the economy.

The monetary policy decision to cut the policy rate is laudable. As the residential sector is already at inflexion point signalling a sustainable recovery, this decision will support the trend. This repo rate cut is likely to have a direct impact on the real estate sector, provided the banks, in turn, transmit the same by a corresponding reduction in lending rates. It has been observed that, despite 50 bps reduction in repo rates by RBI in the previous two reviews, the mortgage interest rate has remained sticky. As a result, the required benefit of the rate cut has not reached the home buyers. However, with regulations reinstating homebuyers’ confidence in the segment, markets witnessed recovery in sales in 2018. Further, in the January-March quarter of 2019, sales grew by 28% as compared to the corresponding quarter in 2018. But commensurate transmission in interest rates will further boost residential sales momentum in 2019. Stronger implementation and continuity of reforms under the second term of the current government will uplift homebuyers’ sentiment.

A step in the right direction: Khushru Jijina, MD, Piramal Capital and Housing Finance

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The downward revision of growth projection by the Reserve Bank of India (RBI) from 7.2 % to 7% in 2019-20 calls for the implementation of additional rapid policy interventions by both RBI as well as the Government. The unanimous decision by the Monetary Policy Committee (MPC) to cut the repo rate by another 25 bps is a step in the right direction.

NBFCs are instrumental in providing credit to MSMEs and real estate sectors, that are significant to India’s GDP. MSMEs contribute 31% of the GDP, 40% of exports and hires 25% of the labour force while real estate contributes more than 5% to GDP and hires 17% of the labour force directly or indirectly.

The credit crunch in the NBFC sector has witnessed a corresponding decline in manufacturing and construction activities in the last two quarters of 2018-19. We anticipate more decisive and pro-active policy measures to address the current liquidity crisis, that will enable NBFCs to restore lending activities, especially to these critical sectors.

Rate cuts will ensure affordability in terms of home loans: Ashok Mohanani, Chairman, EKTA World

www.newsbarons.comFor the third time in a row, the RBI cuts the repo rate cut by 25 basis points. It will definitely spur growth for the real estate sector specifically. The decision changes the stance of monetary policy from neutral to accommodative and to cut the policy repo rate brings it below 6 percent is the first time since September 2010. There have been many meaningful interventions by the government and regulator which has provided a positive boost to the buying sentiment among the home buyers.

Rate cuts will ensure affordability in terms of home loans and thus lowered EMI, lower GST, tax rebate for income up to Rs 6.5 lakhs for the middle class as per as interim budget. All these shall give some sales impetus to real estate.

Home buyers can expect cheaper loans from banks: Jayant Mehrotra, Chief Financial Officer, Lodha Group

RBI’s decision on rate cut by 25 bps, which is also for the third time in a row is a welcome move and home buyers should expect cheaper loans from banks. However, the concern around the actual transmission of rate cuts to effective lending rates persists. Effective transmission and improvement in the liquidity conditions would provide a boost to the real estate market.

Easing of leverage ratio requirement will boost bank lending: Zarin Daruwala, CEO, Standard Chartered Bank, India

The combination of the repo rate cut, the change to an accommodative stance and the resolve to provide adequate liquidity, will provide the impetus to counter growth and investment headwinds. A review of the liquidity framework is a welcome move and should aid monetary transmission. Additionally, the easing of the leverage ratio requirement will boost bank lending and should serve as the much needed countercyclical stimulus.

Rate cut will certainly lead to reduction in interest rates on home loans: Manju Yagnik, Vice Chairperson, Nahar Group

www.newsbarons.comThe year 2019 has brought in the required intervention and announcements that is expected to bring in the required equilibrium from demand-supply mechanism and price functionality in the home market in India. The astounding win of the NDA government has strengthened the market hopes in India. The considerable increase in the Nifty figures from 11,100 to 12,100 within the period of just two weeks is a clear sign of strong market revival considering both long term and short term effects.

As the monetary policy committee today announced a cut down on the interest rates by 25 basis points, this movement has set in motion the ever awaited change in the real estate sector. The following rate cut will certainly lead to reduction in interest rates charged by banks on home loans which will furthermore reduce EMI on housing. The stance change from neutral to accommodative by RBI will boost consumption and assist in regular cash flow in the market.

This is a positive encouragement to all those seeking homes and brings a relief to us developers as well since after a dry spell, we see a potential rise in the real estate sector.

We expect more such actions by RBI on the liquidity front: Rohit Poddar, Managing Director, Poddar Housing and Development Ltd.

www.newsbarons.comThe reduction in the repo rate is essentially driven by the broad-based deceleration in the economy in recent months. This shows the commitment of the RBI to ensure the transmission of rate cuts to the end consumers. Slashing down the rates by 25 Bps along with a changed stance will create a positive ecosystem and stimulate the growth dynamics and investment cycle in the real estate sector. It will consolidate the buying sentiments with lower EMI. There is a slight reform in liquidity issues in the sector after two back to back rate reductions, and a cut-down for the straight third time will definitely undertake the liquidity shortfall in the sector at large. We expect more such actions by RBI on the liquidity front.

A positive impact on the housing market: Mayur Shah, MD of Marathon Group

The Reserve Bank of India (RBI) announcing another repo rate cut by 25 basis points (bps) is good news for borrowers. This is the third time in a row that the central bank has cut key rates this calendar year. After a huge public mandate for the current government, the much needed push to the economy was eagerly awaited. After the expected tax reduction in GST, the cut in the repo rate is yet another positive step for the real estate sector. Overall, this is going to have a positive impact on the housing market and we expect sales and launches to gain further momentum in the current financial year. Borrowers can hope for more rate cuts in the future as monetary policy stance has been changed from neutral to accommodative.

Rate cut by the RBI is highly appreciated by the real estate fraternity: Rajan Bandelkar, President, NAREDCO Maharashtra

The third consecutive 25 basis point cut by the RBI is highly appreciated by the real estate fraternity as well as the home buyers. The previous rate cuts by RBI has not emanated into the transfer of benefits on the expected lines by the financial institutions. RBI has changed its stance from ‘Neutral’ to ‘Accommodative’ which also possibly provide banks the required contextual setting and cushioning to provide funds to NBFCs and thereby, have capital influx in the entire financial system, arresting the liquidity crunch. A good monsoon will lay the context for further rate cuts during the year. The recently revised GST rates coupled with 5.75 per cent and stable government look potentially rewarding with a promising future for home sales in the coming second half of the year.

We expected RBI to take a bolder step and do 50 bps rates cut: Umesh Revankar, MD and CEO – Shriram Transport Finance Ltd

25 bps cut by the RBI is the third consecutive cut in 2019. The transmission of the previous rate cuts had been very discouraging at only 5-10 bps. As the monsoon predication is very positive, we expected RBI to take a bolder step and do 50 bps rates cut, that would have given clear signal to India Inc to push for growth and take investment decisions thereby maintaining the capex cycle.

Because of higher interest rates the consumer spending like auto sales, real estate etc. has been very weak. We urge RBI to open up funding to retail NBFCs through banks that will stimulate the consumer spending.

Rate cut by RBI comes as a positive step for the Indian Economy: Chintan Sheth, Director, Ashwin Sheth Group

The third consecutive repo rate cut by the RBI comes as a positive step for the Indian Economy. Such consistent initiatives play a significant role in not only bringing down the home loan rates but also ease the liquidity crunch thereby reviving the overall health of the sector. We hope that banks pass on the benefit to consumers. Most importantly, we anticipate that the announcement will encourage buyers to buy their dream home.

Rate cut will immediately spur growth for sectors like real estate: Farshid Cooper, MD, Spenta Corporation

www.newsbarons.comGiven the ongoing economic slowdown, with both the consumption and investment engines wavering, the third cut in the repo rate by 25 basis points is an encouraging move to stimulate the economy and will immediately spur a growth for sectors like real estate. Banks should reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. This would enable the borrowing to come down and make it more convenient for home buyers to purchase their dream homes. It will further improve sentiments and encourage demand for real estate and boost employment in the nation.

Governor’s statement to maintain financial stability is reassuring: B Prasanna, Group Head – Global Markets – Sales, Trading and Research, ICICI

The policy was very positive and was reinforced by unanimous voting and the change in stance to accommodative. The statement’s focus on supporting growth and bolstering private investment as long as inflation remains within the mandate, is also encouraging and leads us to believe that more accommodation is on the cards.

Our own expectations for growth and inflation for FY2020 also underscore this view as we expect headline inflation to average under 4% and have revised our growth forecasts lower. The internal committee for liquidity framework is a welcome step. It will help to reduce the information asymmetry regarding systemic liquidity and will benefit not only markets but also banking decisions as regards, deposit taking, lending and transmission. Further, in light of the recent upheavals in the NBFC space, the Governor’s statement that all necessary steps would be taken to maintain financial stability is reassuring.

A higher rate cut would have been more cheerful for the markets: Parth Mehta, Managing Director, Paradigm Realty

www.newsbarons.comThe rate cut of 25bps was imperative to induce liquidity in the Downward spiral economy on the back of all indicators showing slowdown like the peak unemployment rate, shrinking GDP rates, nose-diving auto sales numbers, etc. Since the CPI was well under 2.5% and recent crude prices dip, a higher rate cut would have been more cheerful for the markets. The stance change from neutral to accommodative by RBI indicates the cognizance about the current fragile business environment and we expect further rate cuts in times to come. Rate cuts shall enable affordability in terms of home loans and thus lowered EMI, lower GST, tax rebate for income up to Rs6.5 lakhs (including section 80C) for the middle class as per as interim budget. All these shall give some sales impetus to real estate.

The cut in repo rate was broadly in line with expectations: Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company

The cut in repos rate was broadly in line with expectations. The shift in gear from neutral to accommodative removes ambiguity wrt the direction of rate action. The growth focus, without losing sight of inflation seems to have prompted this move.

Liquidity in the banking system has seen a movement from deficit to positive zone. It is important to see this situation continues to ensure credit transmission. India rates would continue to find anchor and maintain a softening bias going forward.

Rate cut has paved the way for the improvement of the Indian Economy: Samyak Jain, Director, Siddha Group

www.newsbarons.comThe RBI’s decision to reduce the repo rate has paved the way for the improvement of the Indian Economy. The third consecutive rate cut this year is expected to provide the desired impetus to the residential segment of the realty sector through low-cost home loans. We hope that banks pass on the benefit to homebuyers and also expect this initiative to boost credit growth and revive the inactive nature of the economy.

Repo rate cut augurs well with the retail lending sector: Gaurav Chopra, Founder & CEO, IndiaLends

RBI’s decision to reduce repo rate by 25 basis points to 5.75%, augurs well with the retail lending sector. Amidst global uncertainty, subdued domestic industrial activity & CPI within RBI’s comfort zone of 4% within a band of + or – 2%, this anticipated reduction is a welcome move.

This rate cut will cause a rise in the overall investment demand and improve credit environment of the economy. The reduction will give an extra room for the retail loans to become cheaper as this will cause the current cost for lenders to go down along with a possible chance of tenure reduction for old customers. If the eventual lending rates get lower, we can expect a slight motivation from end consumers to borrow more. Additionally, the decision to eliminate charges on fund transfers through RTGS and NEFT routes will provide the necessary impetus to digital fund movements.

The revision in the key policy rate will also favor homebuyers with lower EMI: Saurabh Vohara, Business Head – NoBroker

Revision of repo rate by 25bps for the third time in the consecutive year is an encouraging move for the real estate sector and shows a softer stand towards lending. The rate cut and moderation in the coverage ratio with recent instances of liquidity injections indicate that the RBI is ready to take more risks. The revision in the key policy rate would not only benefit the developers, but will also be in favor of homebuyers as it will lead to lowering the EMI burden, this will in turn lead to boosting affordable and mid segment housing sales. All in all we believe that the rate cut will provide a boost to the real buyer and will lead to much needed investment in the sector. This change is very positive and will be a boost to the languishing real estate market.

We hope and urge the banks to pass on the benefits to the homebuyers: José Braganza, Joint MD, B&F Ventures

This is the third repo rate cut announced by the RBI and we welcome this move. Low inflation and subdued growth are the drivers of the move. Such steps play a crucial role in consonance with reducing the rates of home loan and ease the liquidity crunch in the sector. As developers, we hope and urge the banks to pass on the benefits to the homebuyers. As the stance has changed from Neutral to Accommodative, it will lead to the ease of buying a new or a second home for customers.