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

The RBI, on May 22, 2020, extended the moratorium on all term loans, including home loans, till August 31, while also announcing a 40-basis point reduction in the repo rate

With a view to support economic growth, which is headed towards 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, comes 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 labour. 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.

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As on May 22, 2020, the number of infections in India had touched over 1.18 lakh.

Addressing a press conference, RBI governor Shaktikanta Das said that India’s gross domestic product (GDP) would see contraction and might well be in negative territory in FY21. Das, while addressing his third press conference since a lockdown was imposed by the government on March 25, to stem the number of infections in the country, said that the RBI was vigilant and ready to do whatever it takes, to tackle the unknown future.

“The RBI’s recent announcements will provide further relief to several Indians, who have been forced to sit at home in the wake of the Novel Coronavirus outbreak. However, banks first need to ensure that there is quick transmission of the announced rate cuts, to the end-consumer. Else, the whole effort will be futile,” said Amit Modi, president-elect, CREDAI, Western-UP and director of ABA Corp. The RBI and the government should make sure that these benefits reach the end-consumer, especially now that there is a 40-basis point cut and there is sufficient liquidity in the system, Modi added.

Meanwhile, in a letter to the RBI governor, the Confederation of Real Estate Developers’ Associations of India (CREDAI) has said that banks are not passing on the rate cut benefit to the borrowers and cash-starved developers, despite the reductions by the banking regulator. “While the RBI has reduced the repo rates by 2.50% since January 2019, the maximum reduction passed on by banks to the borrowers has been between 0.7% and 1.3%, largely from August 2019 till date. In some cases, however, no benefit of the repo rate reduction has been passed on,” CREDAI said in the letter.

(With inputs from Sunita Mishra)


RBI announces 3-month 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 favour 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.

(With inputs from Sunita Mishra)


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 per cent, maintaining its accommodative policy stance for as long as it was necessary to revive growth. The central bank retained the GDP growth at 5 per cent for 2019-20 and pegged it at 6 per cent 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 thatThe 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 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 centre, 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 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.

See also: Government mulling special window for NBFCs under insolvency law


Price recovery and market consolidation to be delayed

The residential real estate sector has already been facing high inventory, with 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%).

(With inputs from Housing News Desk)


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 constitues affordable and mid-income housing?

Affordable and mid-income housing projects are those wherein dwelling units do not exceed 200 sq metre 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 is networth 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.  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 into the real estate sector, not only from the end-user’s 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 per cent in the April-June quarter of the current fiscal. While the centre 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.

(With additional inputs from Sunita Mishra) 


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 much 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 one 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 the 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 recapitalisation at one go, would provide a big impetus to credit growth. The lender has already started benchmarking its loans to repo and now other banks are likely to follow suit, he added. Other measures announced to boost the economy, include setting up of an entity for credit enhancement for infrastructure and housing projects, a task force to finalise 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.

See also: SBI lowers lending rates by 0.15%, effective August 10, 2019

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.

See also: SBI lowers lending rates by 0.15%, effective August 10, 2019

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 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, timely transmission of rate cuts, digitisation 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.

See also: Are home buyers really getting the benefit of rate cuts by the RBI?

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 about 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 per cent to 30 per cent 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 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.

See also: RBI to create specialised cadre for regulation of banks and NBFCs

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.


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