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In Depth

Its time for the Banks to cut the lending interest rates and lower the EMIs

Shaktikant Das RBI RealtyMyths

by Santosh Sinha

The real estate sector has, once again welcomed Reserve Bank of India’s decision to revise the Repo Rate and Reverse Repo Rate. The central bank, in its third presser since the COVID19 lockdown, announced a 40-bps cut in the Repo Rate, bringing it down to 4%. Simultaneously, for the second time in a month, the reverse repo rate has also been slashed by another 40-bps and now stands at 3.35%. The developers and the homebuyers both expect that the banks will now further cut their lending interest rates to pass on this benefit to the end consumers.

“The rate cuts combined with the further extension of loan moratoriums by 3 months up to August 31, 2020 augurs well for the real estate sector in the times to come. This move is a major booster shot aiming to cushion the impact of COVID-19 on the Indian economy. Beyond doubt, repo rate cuts do uplift the sentiments of home buyers even further. Home loan interest rates have already gone down substantially over the last year, and are presently at an all-time low averaging between 7.15% to 7.8%”, said Anuj Puri, Chairman ANAROCK Property Consultants.

Due to the crisis created by the Coronavirus, there are many individuals and small business entities who are finding it difficult to pay the EMIs of the loans they have taken. This also includes home loans. A cut in the lending rate would reduce the overall EMI amount significantly. This will allow the availability of liquid cash into the hands of the consumers and will boost their purchasing power.

Dr. Niranjan Hiranandani, President, NAREDCO, said, “Reserve Bank of India’s (RBI) third presser since the lockdown is a continued effort to increase private consumption and provide liquidity access to all sectors hit by the COVID-19 pandemic. These measures will help revive demand crippled by the lockdown”. According to Dr. Hiranandani, there has been a total collapse in demand in both urban and rural India since March 2020. The continued proactive measures taken by the RBI will help address these issues and revive the economy in the second half of the year, he said.

The real estate sector is one of the biggest employment generators for the economy. It also supports more than 200 allied industries. Sadly, it is struggling with the sluggish demand in the market. The homebuyers are not turning up. The developers are sitting on a pile of unsold inventories, which is growing day by day. Though the government understands the importance of this sector, its reformatory measures are yet to show results. Developers are happy with the measures, but they expect direct monetary benefits given to the buyers so that they move on with their decisions to invest in real estate.

CREDAI, the leading real estate industry body, has been demanding such benefits for long. Reacting to the announcements by the RBI, CREDAI said, “Real Estate sector can act as a catalyst in resurrecting the economy, backed by stringent fiscal and non-fiscal measures. The move of moratorium extension is a short-term piecemeal solution to a long-term problem. The interest rate should be reduced with firm liquidity measures as this is the need of the hour backed by one -time restructuring of loans to help the real estate sector from crumpling”. The apex bank has tried to ease the pressure on borrowers and has extended group exposure limit for lenders to corporates from 25% to 30%, but it does not appear enough to solve the ongoing liquidity crisis. CREDAI further said, “Government now needs to ensure that banks are forthcoming and are passing on the benefits to the end consumers”.

A cut in the lending interest rate is indeed the need of the hour. This will not only boost the sentiment in the market, but it will also increase the availability of liquid cash in the hands of the end consumers. Though, this will certainly impact banks’ topline. The ball is now in banks’ court. It will be interesting to see how they play. Can the banks walk the hard-line at this tough time!

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