RBI Policy: Industry Outlook June 2018



RBI Monetary Policy Highlights:

  • MPC hikes interest rates for the first time in over 4 Years
  • Repo rate hiked by 25 bps to 6.25 percent
  • Reverse Repo rate hiked by 25 bps to 6 percent
  • Home loans upto INR 35 lakh being considered as priority sector lending


Shishir Baijal

Shishir Baijal – Chairman & Managing Director, Knight Frank India

The RBI’s stance of increasing the policy rate by 25bps is in line with our expectation considering that the crude oil flared inflation level and the interest rates in the broader economy have been marching higher for some time now. However, this increase in policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of slump has just begun to show early signs of improvement on account of uptick in affordable housing

Chanda Kochhar
Chanda Kochhar

Chanda Kochhar – MD and CEO, ICICI Bank

The hike in the policy rate today reaffirms RBI’s credibility as a vigilant Central Bank especially against the backdrop of heightened global uncertainties. Such timely action will ensure that inflation expectations remain anchored thereby aiding financial stability. The increase in the carve-out from SLR for LCR maintenance is a very important step that addresses the asymmetries in system liquidity and will temper the increase in short term rates. Measures to facilitate greater transparency and depth in financial markets, such as increasing limits in ‘when-issued’ markets and short sale in government securities as well as moving to market valuations for state government securities are welcome steps. Moreover, convergence in definition of the priority sector limit for housing loans with that of the government’s affordable housing scheme will ensure that this segment receives a fillip.

Ramesh Nair

Ramesh Nair – CEO & Country Head, JLL India

The RBIs decision to increase repo rates by 25 bps to 6.25% after 4 years of keeping them stable speaks of a carefully deliberated decision in light of the recent inflationary pressure on the economy.

With inflation in April ’18 close to 4.25%, this decision comes as RBI looks to keep inflation under check in light of the US Fed reserve also announcing an expected hike. The decision was highly expected but will be very critical as the government enters into the election year.

The Monetary Policy Committee’s 3-day session seems to have taken into account the challenging global environment as well as the consumer inflation which is also well above the comfort levels for the central bank. The vote for a hike could also have been aided by the increased crude oil prices. Though the govt. has been passing on the hikes to date, a further hike may be very difficult to pass on which may have put additional pressure on the govt.

The hike may seem to dampen sentiments in the market but in terms of real estate may have little or no impact. As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term. As buying decisions are generally not taken based on fluctuations in home loan rates, there will be very little effect on the real estate market. Though for some home buyers looking towards making a very low ticket size purchase decision, there may be some tentativeness in the decision making, overall we will see minimal impact on the end-user in the housing sector.

George Alexander
George Alexander

Alexander Muthoot – MD, Muthoot Finance Limited

We welcome the RBI`s decision to increase the repo rate by 25bps, first time since January, 2014. Given the inflationary pressure and rising food and fuel prices, this move looks positive for the economy. The rate hike gives a clear hint to India Inc to push for growth, take investment decisions as it can now foresee growth rate to pick up

Khushru Jijina – MD, Piramal Finance & Piramal Housing Finance

It is a mature & calibrated approach by Monetary Policy Committee to hike policy rates by 25 bps while maintaining a neutral stance during a volatile period. This indicates RBI will remain vigilant on retail price levels in the coming months. RBI’s evaluation and outlook for Indian economic growth is encouraging and looks positive for the economy. Consistently improving manufacturing data, recovery in private capacity utilization and IBC resolutions indicate an imminent revival in private investment activity.

Amongst the reforms announced, an important announcement was made regarding home loans upto INR 35 lakhs being considered as priority sector lending.​ This would give a boost to affordable housing real estate sector and help in economic growth.

Umesh Revankar – MD and CEO – Shriram Transport Finance Ltd.

We welcome RBI`s decision of rate hike. Signs of growth like accelerated commercial vehicle sales, improving sales of tractors and two-wheelers in April are encouraging. With the expectation of good rainfall this year, we expect rural demand to pick up on increased food grain production and consumption. This will further help in strengthening the sales of commercial vehicle. Construction activity has seen record highest growth in Q4 in the new series since 2011-12. This will add momentum and help in economic growth.

Adhil Shetty, Co-founder and CEO, BankBazaar.com

General Comment on the Rate Hike: The decision is on expected lines and a well-thought out precautionary move to stay ahead against a backdrop of global volatility in crude and elevated commodity inflation worldwide. The move has reined in inflationary expectations which will help cushion the rupee as well.

The central bank has further retained its GDP growth projection for 2018-19 at 7.4% and for banking sector in particular, RBI has allowed 2% more SLR (statutory liquidity ratio) to meet liquidity coverage ratio. This will particularly help banks in distress.

Advice to home buyers: An existing borrower may not immediately witness any change in their EMI amount, but a higher interest rate would eventually increase the long-term interest out-go. One of the ways to protect yourself is by making a pre-payment that would lower your overall interest outgo. This would be particularly a good move for those at the beginning of their loan tenure.

But if you are nearing the end of your loan, it is wise not to take any steps and simply maintain the loan till the end of its tenure to collect any useful tax deductions. You can also adopt a wait and watch policy for a quarter and take time to understand the impact of the rate hike on your loan. If there is a significant impact, you can explore transferring the home loan to other banks after a comparison of the rates offered to grab the best deal.

Simultaneously, you can also increase your savings or step up your investments to pre-pay your loan so that the interest outflow is not as high.