RBI leaves repo rate unchanged at 4%

This is the third time in a row the central bank has decided to maintain the status quo on key policy rates. The move is however not likely to have any adverse impact on housing demand, say experts.

Banking regulator Reserve Bank of India (RBI), on December 4, 2020, decided to leave its key rates unchanged amid growing concerns over rising inflation. On expected lines, the six-member monetary policy committee (MPC) of the RBI, headed by governor Shaktikanta Das, left the repo rate, at which the RBI lends money to scheduled banks in India, unchanged at 4%. The reverse repo rate, at which the banking regulator borrowers liquidity from banks, also remained unchanged at 3.35%.

For the uninitiated, the reverse repo rate is the rate at which the central bank borrows money from financial institutions in India.

The RBI has also maintained its ‘accommodative’ stance on the policy.

The unanimous decision by the MPC during its bi-monthly policy, came in the backdrop of consumer price-based retail inflation climbing to 7.61% in October, much higher than the RBI’s comfort zone of up to 4%, while growth contracted by 7.5% in the July-September quarter, slower than the apex bank’s forecast of 8.6%. The MPC was of the view that inflation is likely to remain elevated, barring transient relief in the winter months, from prices of perishables.

“The MPC decided to continue with an accommodative stance of the monetary policy as long as necessary, at least till the current financial year and into next year to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target,” said RBI governor Shaktikanta Das.

The real estate industry has welcomed the RBI’s move amid anticipations that the RBI might go for a rate reduction only in the April-June 2021 quarter now, considering the prevailing economic conditions.

“The RBI’s decision of keeping the repo rate unchanged was on expected lines, owing to the rise in inflation in recent months. After COVID-19, Q2 of FY21 witnessed a strong improvement in consumption and therefore, the RBI maintaining the status quo for the third time in a row is a positive step, in keeping inflation under control,” said Anshuman Magazine, chairman and CEO, CBRE India, South-East Asia, Middle East, and Africa.

“The RBI policy was on expected lines. They have prioritized growth over inflation. This is an acknowledgment that inflation drivers seem to be more supply-side-led. An accommodative liquidity stance will ensure that access to liquidity will not be a challenge and the ongoing recovery can continue to gather steam. This will help push through government borrowings, in a year when revenues are under pressure,” said Ashish Shanker, deputy MD and head of investment, Motilal Oswal Private Wealth Management.

On December 3, 2020, all 30 economists who participated in a survey by Bloomberg, said the Reserve Bank would continue to maintain the status quo on policy rates, amid a spike in consumer prices. Similarly, in a poll of 53 economists conducted by Reuters in November 2020, all participants forecast that the RBI would hold rates amid the prevalent economic conditions.

The RBI is unlikely to announce a rate cut in its next policy meeting scheduled for February 3-5, 2021, a report by Motilal Oswal Institutional Equities has indicated. According to the report, the apex bank will continue to maintain a cautious approach towards further easing, despite retail inflation showing a decline in December 2020.

“It is for the first time since the COVID-19 pandemic began that the CPI inflation has come within the RBI’s target inflation range of 2%-6%. What remains to be seen, is if the downward trajectory in food prices continues during CY 2021. In any case, we do not expect any further monetary easing and the RBI is likely to continue to manage domestic liquidity in a calibrated manner,” it said.

Impact on home loan interest rates

This is the third time in a row that the MPC, after a three-day meet that started on December 2, decided to stay put on rates, after reducing it by 115 basis points this year. The RBI last changed the policy rate on May 22, 2020.

Following the last rate cut by the RBI, all major banks in India have reduced their home loan rates to a sub-7% level. However, interest rates on home loans may already have hit a bottom, currently hovering at a 15-year-low and the possibility of financial institutions reducing rates further are slim, considering green shoots of growth are already visible in Asia’s third-largest economy, amid a spike in consumption.

According to SBI chairman Dinesh Kumar Khara, lending rates ‘have actually bottomed’ and will remain at these levels for a while, till the economy recovers.

However, sector experts are of the opinion that that record low-interest rates and several other measures taken by the RBI in the past, to support the real estate sector, will continue to boost demand in the residential housing segment.

“While the apex bank has kept the repo rates unchanged this time, the year, in general, has witnessed significant measures adopted by the RBI, such as rationalization of risk-weightage norms, restructuring of loans based on the projects and linking home loans to LTV, which have encouraged buyers to fulfill their dream of engaging in a high-end investment like real estate. At the same time, although a lot of retail banks are now passing the benefits to the borrowers, we hope the remaining banks are also as swift, in passing on the benefits to customers and continue to adopt a quick disbursal process of funds and loans, keeping real estate as a priority in their lending list,” said Amit Modi, president-elect, CREDAI Western UP and Director, ABA Corp.

Similar views are expressed by Dhruv Agarwala, Group CEO, Housing.com, Makaan.com, and Proptiger.com. “The RBI’s move to maintain status quo on policy rates was expected, in the face of persistently high retail inflation and an already record-low repo rate. Even as signs of recovery appear in Asia’s third-largest economy, the RBI has said that it would be open to cutting rates if the economy needs support, which is a very positive signal for the future,” said Agarwala, adding that the earlier measures announced by the RBI would continue to help the housing sector.

“Interest rates on home loans are already at sub-7% level, with banks offering further sweeteners such as processing fee waivers among many others. We hope banks will continue to lend vigorously to the real estate sector, the second-largest employment generating sector in India,” he said.

“The monetary policy committee’s decision to keep key rates unchanged was on expected lines and may continue in the near future to support growth, as private consumption has slowly started and several stalled projects have been revived due to the government’s efforts,” pointed out Niranjan Hiranandani, national president, NAREDCO.

“Although the RBI has kept the repo rate unchanged, we feel real estate will benefit from the apex bank’s stance that it will use various instruments at an appropriate time, to ensure ample liquidity is available in the system. The sector has repeatedly been saying that one of the major concerns is liquidity and things will be sorted if the RBI can ensure liquidity for the real estate sector,” said Manoj Gaur, MD, Gaurs Group and chairman of the affordable housing committee of industry body CREDAI.

There is also a pressing need to incentivize real estate sales, said Ankit Kansal, co-founder and MD, 360 Realtors, through policy stimuli such as reduced stamp duty, better income tax discounts in home loans, and reduction in the Goods and Services Tax rates. “This can go a long way in giving a further push to the current demand,” he maintained.

Others were also of the opinion that ongoing disruptions might upset the recovery, if not tamed in time. “There is a need to put a check on the spread of the virus and disruptions like the farmers’ protest, etc. These may collectively dampen the festive spirit and the upswing in home buying that we witnessed a few months back,” said Ankush Kaul, president of sales and marketing at Ambience Group.

Signature Global Group founder and chairman Pradeep Aggarwal was of the opinion that if the economy recovers and the job market remains vibrant, buyers looking for affordable homes will expedite the process of owning a property.

“The demand is good the in real estate sector and buyers are more concerned about the low home loan interest rates, which have already been taken care of by the RBI. The status quo stance means that the RBI is confident of the outcome of the steps it took in the last few months. Although real estate is in need of several support measures, the sector is relying heavily on the pent-up demand to remain intact in the months to come and we do not see any reason for it to go down from here,” said Achal Raina, COO, Raheja Developers.

“The real estate industry stands to benefit due to several measures taken by the government, so far. However, there is a lot that needs to be done for the sector to improve its pace of growth. We are looking forward to a bigger rate cut and sector-specific lending provisions, to improve both, the liquidity scenario and consumer spending ability,” said Surendra Hiranandani, CMD, House of Hiranandani.

RBI links home loans to LTV only: How does it affect borrowers?

The move is likely to enable lenders to offer higher credit to homebuyers, at a time when loan sanctions have remained muted on risk concerns despite an uptick in home loan-related inquiries

October 19, 2020: In a move that will allow banks to offer more credit to home loan borrowers in India, the Reserve Bank of India (RBI), on October 9, 2020, made changes in the risk-weightage norms. In its statement on the development and regulatory policies, the central bank said it had linked home loans to the loan-to-value (LTV) ratios only, for all new housing loans sanctioned up to March 31, 2022. Before this, the risk weight percentage was decided by two factors: the size of the loan and the LTV ratio. The move by the RBI came on a day when it also decided to keep the repo rate, at which it lends money to commercial banks in India, at 4%.

“In terms of the extant regulations on capital charge for credit risk of individual housing loans by banks, differential risk weights are applicable, based on the size of the loan, as well as the loan-to-value ratio (LTV). Recognizing the criticality of the real estate sector in economic recovery, given its role in employment generation and the interlinkages with other industries, it has been decided, as a countercyclical measure, to rationalize the risk weights, by linking them only with LTV ratios, for all new housing loans sanctioned up to March 31, 2022,” the RBI statement read. Housing loans, said the RBI, would have a risk weightage of 35%, in case the LTV is up to 80%. In case the LTV is over 80%, the risk weightage of the home loan will be 50%, the banking regulator said.

The measure is likely to free up more funds for banks in India, to lend to the real estate sector, the second-biggest employment generating sector after farming. It will enable lenders to offer higher credit to home buyers at a time when loan sanctions have remained muted on risk concerns, despite an uptick in home loan-related inquiries.

Lauding the RBI move, Niranjan Hiranandani, national president of NAREDCO and ASSOCHAM, said: “This step would benefit borrowers of higher value loans. It would ensure that more credit is available to borrowers. This move is a much-appreciated step, recognizing the role of the real estate sector in generating employment and economic activity.”

The decision to rationalize the risk weights of new home loans and link them to LTV ratios, is a move in the right direction and will help in providing a fillip to the sector, says Surendra Hiranandani, chairman, and managing director, House of Hiranandani.

What does the RBI move on rationalization of risk weightage imply?

For us to understand what happens after the RBI’s tweaking of the norms, we must understand what risk weightage and LTV are and how they impact home loans.

What is risk weightage in a home loan?

Risk weight is that percentage of the approved loan amount, which lenders in India must keep aside, before sanctioning home loans. The RBI raises the risk weight when a certain asset class is seen as riskier, while the opposite is done when an asset is viewed as a safe bet.

The risk weight is then applied to the capital adequacy ratio (CAR) that lenders in India have to maintain. Currently, the CAR is 9% for banks while it is 12% for housing finance companies.

What is the loan-to-value ratio in a home loan?

The loan-to-value ratio or LTV is the percentage of the property value that the bank would provide as a home loan. In other words, the LTV ratio is the proportion of the property value that a bank can finance. The LTV ratio is arrived at, by dividing the loan amount by the value of the property. Financial institutions use the below-mentioned formula to calculate the LTV ratio:

LTV ratio = Borrowed amount/property value x 100

Under the guidelines laid down by the Reserve bank of India, banks can offer a 90% LTV ratio, in case of homes worth less than Rs 30 lakhs. In the case of loans between Rs 30 lakhs and Rs 75 lakhs, the LTV ratio can go up to 80%.

Suppose you are buying a house worth Rs 50 lakhs. The bank will agree to offer up to Rs 40 lakhs as a loan, because of the 80% LTV mandate. The same bank will offer 90% of the money as a loan amount, for a property worth up to 35 lakhs. This would translate into a home loan of Rs 31.50 lakhs.

The final calculation and its outcome

Since the risk weight is 35%, for home loans of up to 80% LTV after the rationalization, a bank that extends Rs 1 crore, should set aside Rs 3.15 lakhs (Loan amount x capital adequacy ratio x risk weight = 1,00,00,000 x 9% x 35%) as risk weight towards the home loan, at the current rate of 35%. In case the LTV is over 80%, the same bank that extends Rs 1 crore as a home loan, should set aside Rs 4.5 lakhs (1,00,00,000 x 9% x 50%) as risk weight at the current rate of 50%. This indicates that when the risk weight is lowered, banks have more money to lend.

RBI leaves repo rate unchanged at 4%

October 9, 2020: The RBI has left the repo rate unchanged in its monetary policy review of October 2020, as it attempts to maintain a balance between boosting the recession-hit economy and curbing inflation

Reserve Bank of India (RBI) governor Shaktikanta Das, on October 9, 2020, said the banking regular has decided to maintain a status quo on the repo rate, at which it lends money to scheduled financial institutions in the country. The RBI continued to maintain an ‘accommodative’ stance, while the reverse repo rate, at which it borrowers funds, was held at 3.35%, as it tried to provide monetary support to the economy, to weather the storm caused by the Coronavirus pandemic.

The RBI stance has been on the expected lines as a Reuters poll of economists conducted in September 2020, showed that the apex bank would keep rates on hold until early 2021, as it attempts to keep inflation in check while also helping the economy come out of its worst recession.

At 6.69% inflation in August 2020, the number remained much-higher than the RBI’s medium-term target range of 2%-6% for the fifth month. To make matters worse, Coronavirus infections spread in India at the fastest pace than anywhere in the world.

The three-day meet that started on October 7, 2020, was the first meeting of the new Monetary Policy Committee (MPC), which was formed after the appointment of three external members, including Jayant Verma, Ashima Goyal, and Shashanka Bhide. Earlier scheduled for September 29-October 1, the meeting of the six-member MPC had to be rescheduled to October 7-9, 2020, because of the new appointments.

Impact on home buyers

Even though the RBI has decided to leave repo rates unchanged, it has already brought it down to a record 15-year low, through a cumulative reduction of 250 basis points since February 2019. Taking a cue from the apex banks, lenders in the country have already lowered home loan interest rates to record low levels.

Leading the pack in rate reduction are public sector banks that have brought home loan interest rates to a sub-7% level. In September, the Union Bank of India started a price war of sorts by bringing its home loan interest rate to 6.7% per annum. In a move to attract more borrowers, public lender SBI has also waived off the processing fee for home loan approvals.

“There would be a complete waiver on processing fees on home loans, for homebuyers in approved projects. The bank is also providing special concessions of up to 10 bps on the interest rate for the customers, based on their credit score and loan amount. Additionally, homebuyers can avail 5 bps interest concession, if they apply for a home loan via YONO,” the bank said in a statement, on September 28, 2020.

While stating that further reduction in key interest rates was not a possibility at this juncture, ASSOCHAM president Niranjan Hiranandani said that the RBI’s decision to rationalize the risk weights on home loans and link them to the loan-to-value ratios would give a boost to the real estate sector. “This step would ensure that more credit is available to borrowers. This move is a much-appreciated step, recognizing the role of the real estate sector in generating employment and economic activity,” he said.

According to Surendra Hiranandani, chairman, and managing director, House of Hiranandani, any further cut in policy rates would have definitely pushed the home buyers, who were waiting for the perfect opportunity to invest in their dream home, to firm up their buying decisions.

Amit Modi, director, ABA Corp, and president-elect, CREDAI Western UP, maintains that there is scope for further reduction in rates by banks. “Even though the apex bank has kept the rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates for their customers. During the lockdown, the RBI reduced the repo rate and this is yet to be fully passed on to the customers,” he said.

RBI holds repo rate at 4%

August 6, 2020: With an aim to keep the inflation level under control, the Reserve Bank of India (RBI), on August 6, 2020, left key policy rates unchanged while announcing its bi-monthly monetary policy review. Retail inflation in June rose 6.09%, higher than the banking regulator’s 2%-6% target range.

With this, the repo rate remains intact at 4% and the reverse repo rate at 3.35%. The halt in rate cut comes after the apex bank announced a cumulative 115-basis-point reduction, since February this year. Experts were of the opinion that the RBI might go for a further reduction in rates by 25 basis points.

The banking regulator has, however,  decided to provide additional liquidity to the tune of Rs 10,000 crores to the National Housing Bank and the NABARD, in a move that will greatly benefit the housing sector.  According to Surendra Hiranandani, chairman, and managing director, House of Hiranandani, the move will help the NBFCs and housing sector to tide over the liquidity crisis.

RBI extends moratorium on home loan EMIs till August, cuts repo rate to 4%

With a view to supporting economic growth, which is headed towards a contraction in the wake of the Coronavirus pandemic, the Reserve Bank of India (RBI), on May 22, 2020, reduced the repo rate to 4%. The 40-basis point cut in the repo rate, at which the RBI lends money to scheduled banks in India, came two months after the banking regulator cut its key lending rate by 75 basis points, to bring it down to 4.40%.

In a major relief for those servicing loans, including home loans, the apex bank has also extended the three-month moratorium by another three months, till August 31, 2020. The RBI had, in March, announced a three-month deferment on long-tenure loans, keeping in mind the Coronavirus spread in the country and its impact on people’s income.

The new RBI announcement follows a series of announcements made by the banking regulator earlier, to support the economy which has taken a beating because of the pandemic and the subsequent lockdown. The government has also announced a Rs 20-lakh-crore stimulus package, to support the economy.

“Even though the lockdown may be lifted by end-May with some restrictions, economic activity in Q2 may remain subdued, due to social distancing measures and the temporary shortage of labor. Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4, as supply lines are gradually restored to normalcy and demand gradually revives,” the RBI said.

RBI announces moratorium on home loan EMIs, cuts rates

The RBI has announced a steep 0.75% cut in the repo rate and a 1% cut in the CRR, as well as a 3-month EMI holiday on all loans including home loans, in the wake of the Coronavirus outbreak

The Reserve Bank of India (RBI), on March 27, 2020, announced a steep 75 basis points cut in the repo rate, bringing it down to 4.4%. The central bank also permitted a three-month moratorium on all loans, including home loans, extended by commercial banks and lending institutions.

“All commercial banks, co-operative banks, all-India financial institutions, and NBFCs (including housing finance companies and micro-finance institutions) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020,” the RBI said. The RBI, while imposing the moratorium on principal and interest payments for three months on term loans, has told banks that non-payment should not be considered as a ‘non-performing asset’.

The announcement was made at an unscheduled Monetary Policy Committee meeting, which was called in the wake of the 21-day nation-wide lockdown announced by prime minister Narendra Modi from March 25, to curb the spread of the Coronavirus. Four of the six members of the MPC voted in favor of the rate cut. “The economic outlook globally is uncertain and obviously negative. Financial stability is the topmost priority of the RBI in this crisis. Banks should do all they can to keep credit flowing,” RBI governor Shaktikanta Das said.

The RBI also slashed the cash reserve ratio (CRR is the amount of cash that commercial banks have to compulsorily park with the RBI) by 100 basis points for a period of one year, to boost liquidity in the system. Das said the move would release Rs 1,37,000 crores of liquidity within banks.

RBI announces incentive for lending to the housing sector

In a move aimed at encouraging lenders to extend loans to the housing, MSME, and auto sectors, the RBI has tweaked the cash reserve ratio (CRR) norms

February 7, 2020: In a bid to increase lending to MSME, as well as to auto and home segments, the Reserve Bank of India (RBI), on February 6, 2020, tweaked maintenance of cash reserve ratio (CRR) norms by providing relaxation in calculation of total deposits. The move will encourage lending towards these targeted sectors having multiplier effect by banks, as they will get exemption in CRR over incremental lending. This exemption window is available till July 2020. CRR is the percentage of total deposits that banks mandatorily park with the apex bank. It stands at 4% of a bank’s total deposit.

“It has now been decided that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them, as retail loans for automobiles, residential housing, and loans to micro, small and medium enterprises (MSMEs), over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020, from their net demand and time liabilities (NDTL) for maintenance of CRR,” it said. This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020, it said.

To give boost to the real estate sector, the RBI said, it has been decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector. “This would complement the initiatives taken by the government of India in the real estate sector. The detailed instructions will be issued shortly,” it said.

Post transfer of regulation of housing finance companies (HFCs) from the National Housing Bank (NHB) to the RBI, with effect from August 9, 2019, it was decided that the Reserve Bank will carry out a review of the extant regulatory framework applicable to HFCs and issue revised regulations in due course and till such time, HFCs shall continue to comply with the directions and instructions issued by NHB. “It is proposed to place the draft revised regulations on the Bank’s website by the end of this month, for public comments,” it said.

RBI keeps benchmark interest rate unchanged at 5.15%

After a series of rate cuts, the RBI has maintained a status-quo on the repo rate at 5.15%, for the second time in a row

February 6, 2020: The Reserve Bank of India, for the second straight time in a row, kept its key policy rate unchanged at 5.15 percent, maintaining its accommodative policy stance for as long as it was necessary to revive growth. The central bank retained the GDP growth at 5 percent for 2019-20 and pegged it at 6 percent for the next fiscal. “Economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain the status quo,” the Monetary Policy Committee (MPC) said. While the six-member committee voted unanimously to hold rates, it also said that there is “Policy space available for further action.”

Ramesh Nair CEO & Country Head, JLL India, added that “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 the extension of the 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. 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.”

Dr. Joseph Thomas, head of research – Emkay Wealth Management, explained that “The RBI has crafted a fine balancing act of reconciling the requirements of growth with stability by keeping the repo rate unchanged at 5.15%. In the recent policy pronouncements, the RBI had very clearly indicated that the requirements of growth should get precedence over stability, against the conditions of sluggish economic growth and the fall in consumption and investment demand. In line with this, the RBI cut the repo rate many times but had left the rates unchanged the last time around too. Inflation has been gradually rising, and the last CPI numbers indicate a strong rise in inflationary pressures but occasioned mostly by the food basket. It was widely expected that the RBI was likely to continue with the pause till there was greater visibility on the inflation front. At this juncture, rate modification is actually not required as the interbank market has a huge surplus of close to Rs 3 lakh crores to support the liquidity requirements of the system, and this alone will ensure that the short-term rates do not move up. The status quo comes as a relief to the short-end of the curve, but the pressures at the long end may persist for a longer time.”

Between February and October 2019, the RBI had reduced the repo rate by 135 basis points.

RBI keeps repo rate unchanged at 5.15%

After a series of rate cuts, the RBI has maintained a status-quo on the repo rate at 5.15%, at its fifth bi-monthly monetary policy for this fiscal

December 5, 2019: The Reserve Bank of India (RBI), on December 5, 2019, kept the key policy rate unchanged at 5.15% and decided to continue with its accommodative stance, to support the economy. The central bank also revised GDP growth downwards to 5% for 2019-20, from 6.1% projected in its October 2019 policy.

“The Monetary Policy Committee recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture,” the RBI said, in its fifth bi-monthly monetary policy for this fiscal. The panel decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target. All the six members of the MPC voted in favour of a rate pause.

The CPI inflation projection is revised upwards to 5.1%-4.7% for H2 FY20 and 4%-3.8% for H1 FY21. Between February and October 2019, the RBI has reduced the repo rate by 135 basis points.

Real estate stress fund can help up to 14,000 flats in Ghaziabad: CREDAI

Around 14,000 home buyers in Ghaziabad can be handed completed flats, if builders in the city get access to the ‘stress fund’ announced by the center, the Confederation of Real Estate Developers Association of India has said

November 20, 2019: Approximately 30,000 units, which are in various stages of completion, are pending in Ghaziabad, realtors’ apex body Confederation of Real Estate Developers Association of India (CREDAI) said, adding that the average delay in projects here is two to three years. “The Rs 25,000-crore stress fund announced by the government, is going to help around 40 to 50 projects in Ghaziabad, meaning benefit to 12,000 to 14,000 buyers awaiting delivery of their homes,” CREDAI Ghaziabad president, Gaurav Gupta said, on November 19, 2019.

“Our only request is that the modalities of this fund should be brought out soon so that the funds could be availed. A delay of six or 12 months in the modalities could mean several other projects, which are not stressed but on the verge of it, would be impacted,” he said. The body also reiterated its demand for an amendment in the law, seeking the consent of at least two-thirds of home buyers of any project, for initiating insolvency proceedings against any promoter. It added that the Real Estate Regulation Authority (RERA) should be the first contact point for any buyer, instead of the National Company Law Tribunal (NCLT) or the Consumer Forum.

Government’s Rs 25k cr real estate fund may aggravate demand-supply imbalance: India Ratings

The government’s Rs 25,000-crore alternative investment fund may provide relief to home buyers but could worsen the demand-supply imbalance with stalled projects coming on stream, says a report by India Ratings and Research

November 8, 2019: The government of India’s decision to set up a fund of Rs 25,000 crores, to provide priority debt financing for the completion of stalled housing projects, will provide relief to home buyers awaiting possession of their properties, India Ratings and Research said, in a report. The fund would offer an alternate funding channel to net worth-positive projects that have been stalled, because of operational liquidity/credit availability issues and it would benefit some real estate-focused non-banking financial companies and housing finance companies, by reviving viable projects that were classified as non-performing assets (NPAs).

However, with stalled projects coming on stream, the demand-supply imbalance is likely to worsen and if overall housing demand does not witness a recovery, pricing pressure in the sector is likely to be exacerbated. Furthermore, market consolidation in favour of Grade I players might also become protracted, as supply from non-Grade I players comes on stream. Under India Ratings and Research (Fitch Group) classification, Grade-I builders are those who have a reputed brand name, significant market share, strong execution capabilities, robust balance sheet with high financial flexibility and are regulatory compliant.

Change in eligibility criteria to help distressed projects

The new guidelines have widened the scope for projects that could avail funding under this special window. It will now include housing units up to a ticket size of Rs 2 crores (Mumbai – Rs 2 crores; other top seven cities – Rs 1.5 crores; and remaining cities – Rs 1 crore) and projects that have been classified as NPA or are under National Company Law Tribunal (NCLT) proceedings, subject to them being net worth positive (cash flows higher than the project cost). Unlike the earlier announcement in September 2019, wherein the funding was restricted to non-NPA and non-NCLT projects only, the new measure would aid projects that are fundamentally viable but have been struggling due to slow sales and/or lack of credit availability.

Price recovery and market consolidation to be delayed

The residential real estate sector has already been facing high inventory, with a quarter to sale (QTS) inventory of 9-24 quarters in the top six cities, as of June 2019, compared to QTS of 16-23 quarters as of end CY16 (Source: Liases Foras). Due to funding constraints and regulatory changes, supply addition has come down on an absolute basis since 2016, while demand/absorption has remained broadly stable, thereby, restoring some supply-demand balance over the last two years.

While the announced scheme will result in supply of habitable inventory, it would not have any direct impact on the demand. This may distort the ongoing consolidation/ correction in the real estate market and result in further pricing pressure. A fund of this size would have the ability to bring about 300 million sq ft on stream, over the next two to three years, assuming last mile funding of 30%, for projects with an average construction cost of Rs 2,500 per sq ft. Furthermore, this supply will primarily be witnessed in the Mumbai Metropolitan Region (MMR) and National Capital Region ((NCR) markets, which have a fairly high number of stalled projects. At end-Q1FY20, the top six markets had sold 69 million sq ft (MMR and NCR jointly accounted for about 46%) and had about 10 billion sq ff of unsold inventory (MMR and NCR together accounted for about 54%).

Government announces Rs 25k cr fund for stalled housing projects which are not under litigation in higher courts

The government has approved a Rs 25,000-crore fund, to help complete over 1,600 stalled housing projects, including ones that have been declared NPAs or admitted for insolvency proceedings, in a bid to boost growth by steering consumption in the real estate and associated sectors

November 8, 2019: In order to restore normalcy in India’s real estate sector, the second-biggest employment-generating sector after agriculture, the government on November 6, 2019, said it would establish a Rs 25,000-crore alternative investment fund (AIF) to help complete stuck projects. According to government estimates, the fund will help as many as 1,600 stuck projects consisting of 4.58 lakh housing units across the country.

Following the announcement, the government has also advised home buyers to approach lenders for additional borrowing or revival of their loans. “Home buyers are advised to reach out to their respective lending institutions to seek necessary guidance for additional borrowing or revival of their existing home loans, within the existing legal and regulatory framework and standard board-approved policies of the lending institutions,” said the frequently asked questions (FAQs) issued by the Finance Ministry. The FAQs also said the proposed AIF will not invest in projects that are facing litigation in the high courts or the Supreme Court. The Finance Ministry also said the maximum funding will be Rs 400 crores, for any single project that will be seeking assistance from the ‘special window’ or the alternative investment fund (AIF).

Finance minister Nirmala Sitharaman said the Alternative Investment Fund (AIF) will have Rs 10,000 crores coming from the government and the remaining being provided by state insurer LIC and the country’s largest lender, SBI. The minister also said several sovereign funds have shown interest and may join the scheme at a later stage. The fund, to be set up as Category-II AIF registered with SEBI, will be managed by SBICAP Ventures Limited.

The AIF, which was first announced by Sitharaman on September 14, 2019, will act as a ‘special window’, to provide loans to over 1,600 incomplete affordable and middle to lower-income housing projects. Sitharaman said the scheme, approved by the union cabinet headed by prime minister Narendra Modi, is a modified version of the September 14, 2019, plan.

“Government’s intention is completion of housing projects,” the minister said after the cabinet meeting. She further said meetings were held with home buyers, associations, banks and the RBI during the past few months and it was decided to modify the scheme, by including even those projects which have been declared non-performing assets (NPAs) by lenders and also those which have been dragged to the NCLT for insolvency proceedings. She, however, said only RERA-registered projects with positive networth will be provided funds. The AIF funds will be released in stages through an escrow account and will be contingent upon completion of the approved phase, she said, adding the size of the fund may be increased with the participation of sovereign and pension funds. She also said that the Reserve Bank of India would be soon coming out with a clarificatory note on the scheme.

What constitutes affordable and mid-income housing?

Affordable and mid-income housing projects are those wherein dwelling units do not exceed 200 sq meter carpet area and are priced up to Rs 2 crores in the Mumbai Metropolitan Region, up to Rs 1.5 crores in the National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad, and up to Rs 1 crore in the rest of the country.

Meanwhile, sources said about Rs 3.5 lakh crores had been invested in the over 1,600 stalled projects, and investment of Rs 55,000 crores to Rs 80,000 crores would be needed to complete them.

Developers welcome stetting up of the AIF

Real estate developers’ association CREDAI has welcomed the setting up of the AIF. “It’s a welcome change from the initial announcement of September 14, 2019. Now the only criteria for eligibility are net worth positive projects. This will ensure that the fund is actually deployed, to complete incomplete projects which are even NPA or also in the NCLT. We are certain that a majority of stuck home buyers will benefit from the announcement,” CREDAI chairman Jaxay Shah said.

Niranjan Hiranandani, national president of NAREDCO and MD, Hiranandani Group, added “The vexed problem of delayed and stalled real estate projects appears to have found a solution, with the finance minister announcing the cabinet’s approval of the scheme to provide last-mile funding for such projects, which she had proposed earlier. This will be a win-win for home buyers and real estate developers, as it will help alleviate financial stress faced by home buyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes.  The positive impact of the move includes generation of employment, the revival of demand for cement, iron and steel industries and relieving stress in other major sectors of the economy.”

According to Shishir Baijal, chairman and managing director, Knight Frank, the inclusion of developments under NPAs and NCLT, albeit that these are net positive projects, into the special window funding is a welcome decision. “The extension of this benefit to mid-income, beyond the affordable housing segment, is a critical step forward. This will help create greater momentum in inventory movement. Many projects which are near completion but have not been able to garner last-mile funds, will benefit from this move,” he said.

Anshuman Magazine, chairman and CEO – India, south-east Asia, middle-east and Africa at CBRE said, “This move will go a long way in building confidence in the real estate sector, not only from the end-users perspective but also from an  investor’s perspective.”

Parth Mehta, managing director of Paradigm Realty, added: “The recent announcement by the finance minister, will help projects which are at a good construction stage but have got stuck due to lack of project finance or adequate sales. It will help the buyers in the ticket sizes of Rs 1 crore or less, which is typically a first home for salaried families in metro cities.”

The government announcement is part of the many recent decisions it has taken to revive the economy after growth hit a six-year low of five percent in the April-June quarter of the current fiscal. While the center has increased the tax deduction limit on housing loan interest in the annual budget to Rs 3.50 lakhs for affordable units, the Reserve Bank of India has also brought down the repo rate to 5.15% through consecutive reductions. Both these moves are targeted to push housing sales in the country, which has continuously been plunging.

According to a quarterly report by PropTiger.com, home sales in India’s nine key residential markets declined 25% in the July-September quarter primarily because of project delay-induced low buyer sentiment. Data also show developers in these markets are sitting on unsold inventory consisting of nearly eight lakh units.

RBI cuts benchmark lending rate by 0.25%, to 5.15%

The RBI, on October 4, 2019, cut interest rates for the fifth time in a row, reducing the repo rate by 0.25%, to bring it to 5.15%

October 4, 2019: The Reserve Bank of India (RBI), on October 4, 2019, cut the key interest rate by 0.25% (25 basis points), to boost the economy from a six-year low, saying that the reduction was necessary to revive growth. Consequently, the repo rate, at which it lends to the system, has been brought down to 5.15%, to help reduce borrowing costs for home and auto loans, which are now directly linked to this benchmark.

This is the fifth straight cut in rates by the Reserve Bank in its key rates in as many policy reviews in 2019 and takes the total quantum of reductions to 1.35%. All members of the rate-setting Monetary Policy Committee (MPC) voted for the latest rate cut. However, the central bank expressed concern that the monetary transmission has been staggered and incomplete.

The six-member monetary policy committee (MPC) also maintained an ‘accommodative policy stance with a view to reviving growth’. With the first-quarter GDP growth plunging to 5%, the RBI cut its estimate of economic growth in the current fiscal to 6.1% from its earlier estimate of 6.9%.

Banks with exposure to poorly-run NBFCs will have to take larger haircuts: RBI governor

Banks will have to take more haircuts while resolving the stressed loans extended to non-banking lenders who are found wanting on the corporate governance front, RBI governor Shaktikanta Das has warned

September 20, 2019: In resolving the crisis at NBFCs that have major governance issues, banks need to take a larger haircut, Reserve Bank of India (RBI) governor Shaktikanta Das said, on September 19, 2019. “These are business failures but there is also an element of administrative or governance lapses in them,” Das said. Das’ comment on non-banking finance companies (NBFCs) comes at a time when banks are grappling with the resolution of stressed cases like the over Rs 50,000-crore dues from mortgage financier DHFL.

Das further said banks will have to take a ‘balanced call’, while dealing with the issues of stressed loans. He, however, made it clear that the RBI will not immediately resort to using recent amendments in the statutes, which empower it to take control of an NBFC, as the first priority would be to find ‘market-based’ solutions for the same. Market-based solutions can involve promoters cutting stake, new promoters coming in or securitisation of the assets to raise resources to come out of liquidity issues. He said the RBI continues to monitor the 50 largest NBFCs on a continuing basis and it will be using the powers of the amended statutes, only if any need arises.

The going has been tough for NBFCs over the last year, since infra-focused sectoral major IL&FS started defaulting on its loans, triggering a liquidity crisis among NBFCs. NBFCs typically depend on short-term borrowing to finance long-term assets like home loans, which has led to troubles in the sector, the RBI had said.

FM Announces Rs 20,000 Crores Fund To Finish Stuck Projects, Relaxes ECB Guidelines

FM Sitharaman has announced last-mile funding for non-NCLT and non-NPA affordable and middle-income projects

September 14, 2019: The Finance Minister Nirmala Sitharaman on September 14, 2019, has announced a slew of measures for the real estate sector to fund stuck housing projects and ease borrowing norms for lenders financing affordable home buyers. These measures include-

Relaxation of ECB Guidelines under Affordable Housing: The external commercial borrowing (ECB) guidelines will be relaxed to facilitate the financing of home buyers who are eligible under PMAY, in consultation with the RBI. This will be in addition to the existing norms for ECB for affordable housing.

House Building Advance: The interest rate on House Building Advance will be lowered and linked with the 10-year G Sec Yields (7.7-7.75%). This move is expected to encourage more government employees to buy new houses

Special funding for affordable and middle-income housing: A special window for providing last-mile funding for non-NPA and non-NCLT affordable and middle-income category projects which are Net Worth positive will be set up. The government of India will contribute Rs 10,000 crore and the same amount will be contributed by outside investors. The fund will be managed by professionals from the housing and banking sectors. The objective is to focus on the construction of unfinished units.

“Projects that are 60% complete shall get last mile funding through special window. We will not interfere with the projects that are under NCLT. The tribunal will decide what has to be done. About 3.5 lakh dwelling units to benefit from this,” says Finance Minister Nirmala Sitharaman.

Banks to reduce home loan interest rates says FM while announcing economic stimulus measures

The government, on August 23, 2019, announced a slew of measures, including the banks’ decision to cut interest rates, a move that would lead to lower EMIs for home, auto, and other loans; upfront infusion of Rs 70,000 crores to public sector banks, in efforts to boost economic growth from a five-year low; the rollback of enhanced super-rich tax on foreign and domestic equity investors, exemption of start-ups from ‘angel tax’, a package to address distress in the auto sector.

Finance minister Nirmala Sitharaman, who had been flooded with demands from different sectors after her maiden budget in 2019, promised to continue the reforms and announce more measures. She announced an immediate infusion of Rs 70,000 crores into banks, to boost their liquidity and lending capacity of banks by Rs 5 lakh crores, while housing finance companies would get up to Rs 30,000 crores, with a view to reviving the real estate sector.

“Banks have again decided to launch repo rate or external benchmarking-linked loan products. This will, therefore, result in reduced EMI for housing loans, vehicle and other retail loans by directly linking repo rate to the interest rates, which means the moment reduction happens, it will directly benefit end customers,” Sitharaman said. She said the move would also lead to cheaper working capital loans for the industry.

SBI chairman Rajnish Kumar said bank recapitalization at one go, would provide a big impetus to credit growth. The lender has already started benchmarking its loans to the repo and now other banks are likely to follow suit, he added. Other measures announced to boost the economy, including setting up an entity for credit enhancement for infrastructure and housing projects, a task force to finalize the pipeline of infrastructure projects, and simplification of Know Your Client (KYC) procedure to improve market access for foreign investors.

“Linking of repo rates directly to home loan rates, will aid the home buyers to avail of faster and cheaper home loans. This rejig of spending model by government, is a clear intent to stoke demand and ease bank credit, which had taken a hit across the industry,” said Niranjan Hiranandani, national president, NAREDCO.

The infusion of Rs 70,000 crores in PSBs, along with various initiatives announced by the FM, will boost market sentiments and revive many sectors, particularly the automobile, MSME, consumer and retail sectors. Housing will get a big boost, with Rs 30,000-crore funds, including Rs 10,000 crores already given to the NHB, for refinance facility to HFCs. With measures to resolve home buyers’ and developers’ problems expected, the economy is expected to come back to normalcy in 3-4 months,” said Deo Shankar Tripathi, MD and CEO of Aadhar Housing Finance.

UCO Bank, Allahabad Bank cut MCLR

Following the repo rate cut by the RBI, state-run lenders Allahabad Bank and UCO Bank have slashed their marginal cost of funds-based lending rate (MCLR) by 15 to 20 basis points, across all tenors

August 12, 2019: Days after the 35 bps repo rate cut by the Reserve Bank of India (RBI), state-run lenders Allahabad Bank and UCO Bank, on August 9, 2019, slashed their marginal cost of funds-based lending rate (MCLR) across all tenors. Allahabad Bank said it has reduced its MCLR by 15 to 20 basis points (bps) for different tenors, effective from August 14, 2019, while another public sector lender UCO Bank announced that it has cut the same by 15 bps, across all tenors.

“The benchmark one-year MCLR has been reduced by 15 bps to 8.5 per cent, as against 8.65 per cent earlier,” UCO Bank said in a statement. The one-year MCLR is the rate based on which the retail loans such as home, car and personal advances are linked, the lender said. UCO Bank is planning to link the rate of interest with the RBI’s repo rates, to pass on the benefit to customers.

Allahabad Bank also said it has decided to reduce the rate of interest on retail term deposits by 10 bps, across all terms over one year. Allahabad Bank’s MD and CEO SS Mallikarjuna Rao, said the bank will be exploring the development of products of both, assets and liabilities, linked with an external benchmark, to transmit the benefits of rate cut to its customers, shortly.

RBI slashes interest rate by 0.35%, making it the fourth cut in a row

The RBI, on August 7, 2019, cut interest rates for the fourth time in a row, reducing the repo rate by 0.35%, to bring it to 5.40%

August 7, 2019: The Reserve Bank of India (RBI), on August 7, 2019, cut the key interest rate for the fourth consecutive time, as it reduced the repo rate by 35 basis points (0.35%) to 5.40%, to boost the slowing economy. The six-member monetary policy committee (MPC) also maintained the accommodative stance on the monetary policy. In the earlier three policies, it reduced the repo rate by 25 basis points, each time.

The fourth consecutive rate cut, is expected to lower equated monthly instalments (EMIs) for home and auto buyers and borrowing costs for corporates. The 35 basis points (bps) cut in repo is unusual, as the RBI has been changing the interest rate by 25 or 50 bps, in the past. When asked why the RBI opted for a 35-basis point rate cut, RBI governor Shaktikanta Das said it is not unprecedented and added that a 25-basis point reduction was inadequate, while 50 bps was excessive. So, the MPC took a balanced callm he said.

Noting that inflation was currently projected to remain within the target, over a 12-month horizon, the MPC said since the last (June 2019) policy, domestic economic activity continued to be weak, with the global slowdown and escalating trade tensions posed downside risks. It said that even as the past rate cuts were being gradually transmitted to the real economy, the benign inflation outlook provided headroom for policy action, to close the negative output gap.

The RBI also revised real GDP growth for 2019-20 downwards, to 6.9% from 7% in the June policy. CPI inflation is projected at 3.1% for the second quarter of FY20 and 3.5%-3.7% for the second half of FY20, with risks evenly balanced, it said.

Bankers agree to take steps, to pass on RBI’s rate cuts

The Finance Ministry has said that banks have agreed to take steps to review lending rates, as they have not ‘commensurately’ transmitted the benefits of reductions in the policy rate by the RBI, to borrowers

August 6, 2019: Since December 2018, the monetary policy has been eased substantially by the Reserve Bank of India (RBI), with policy rates being cut by 75 basis points (bps) and the policy outlook being changed to ‘accommodative’. “Banks need to commensurately transmit the rate cut benefits in lending. In the meeting, banks agreed to take steps as per RBI guidelines, to review their lending rates,” said an official release, on August 5, 2019. The release was issued after a meeting between finance minister Nirmala Sitharaman and heads of public sector banks (PSBs), as well as private lenders, including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and CitiBank.

Financial services secretary Rajiv Kumar said a range of issues connecting to credit growth, micro, small and medium enterprises (MSMEs), automobiles, the timely transmission of rate cuts, digitization, and service tax-related issues, were discussed at length. “The idea is to take stock of everything and spur credit growth, especially in the automobile sector, in the agriculture sector, in the MSMEs and also look at the ‘co-origination’ with the NBFCs and HFCs, where the banks have the credit availability so that they can join hands together and lending reach to the last mile,” Kumar said.

Touching upon the issue of home buyers discussed in the meeting, the minister said the Supreme Court has already come out with its verdict in the case of one of the big realty firms. However, in case of another, the ministry had consultations with various stakeholders. “On another (developer), we have had a group of ministers meeting with all the respective authorities, whether it was the Noida Authority, or the Yamuna Expressway Authority, together with representatives of Uttar Pradesh, with the Union Minister of Urban Development Hardeep Singh Puri and the concerned secretaries – banking, revenue and company affairs,” she said. Sitharaman said there have been extensive meetings and the government hopes to move forward in that direction.

On funding to MSME and non-banking financial company (NBFC) sectors, she said the meeting discussed ways to improve lending to these businesses. The minister said there is a complex matrix of governance-related, solvency-related, and liquidity-related issues. RBI deputy governor NS Vishwanathan, who also attended the meeting, said the banking system has adequate and durable liquidity currently.

Sitharaman talked about issues related to the increase in public shareholding in listed companies from 25 percent to 30 percent as well as levy of surcharge on super riches. She said market regulator SEBI has already started consultations with various stakeholders about the increase in public shareholding to 30% in listed entities. About levy of surcharge on foreign portfolio investors (FPIs) as part of the tax on super riches announced in the Budget 2019-20, she said, “I did mention that there are FPIs who are going to tell me something about it and I am quite open to hearing out what they want to tell me. And towards that, I have not just left it at that.” She said Department of Economic Affairs (DEA) Secretary Atanu Chakraborty has clearly culled out time to meet with the FPIs so that the ministry can have their views.

RBI cuts interest rates for the third time this year, to boost growth

Amid concerns over a slowing economy, the Reserve Bank of India has cut interest rates for the third time this year, lowering the repo rate by 0.25%, to 5.75%

June 6, 2019: Slashing the benchmark lending rates for the third time this year, the Reserve Bank of India (RBI) cut its repo rate by 0.25% on June 6, 2019 and said its future monetary policy stance will be more accommodative. The repo rate, at which the central bank lends to the system, will come down to 5.75% after the cut.

Amid concerns of a slowdown in the economy, the central bank lowered its gross domestic product (GDP) forecast to 7% for the current fiscal from 7.2% projected earlier. While marginally increasing its inflation projection to 3%-3.1% for the first half of the fiscal year 2019-20, which is within the comfort range of 2%-6% set by the government, the RBI cut the GDP growth targets sharply to 7% for FY20, on the back of a weak global scenario and dip in private consumption.

“The MPC (monetary policy committee) notes that growth impulses have weakened significantly. A sharp slowdown in investment activity, along with a continuing moderation in private consumption growth, is a matter of concern,” read the policy resolution.

Source – https://housing.com/news/rbi-monetary-policy-interest-rates/