RBI Governor hopes low rates will spur home buys but moots transparency

“If people were staying away from making purchases despite access to finance, then it reflected their view of prices and not financing”

Reserve Bank of India Governor Raghuram Rajan today expressed hope that home buyers who are still on the sidelines will look to make purchases as interest rates come down, but also batted for adjustment in home prices and greater transparency in the sector.

"Hopefully, as interest rates come down, there will be more credit and buying," Rajan said in response to a query from a developer after delivering the Y.B. Chavan Memorial Lecture today. "But, also, I am hopeful that prices adjust so that it encourages people to buy."

Rajan pointed out that credit for housing has improved over the years, especially with affordable housing being a part of the priority sector. However, he added that if people were staying away from making purchases despite access to finance, then it reflected their view of prices and not financing.

The governor said construction was a huge source of activity for any developing country, including India, whether it was homes, road, or affordable housing, and is a "big part of the growth process".

But, he said that for developer financing to improve further, there was a need for some action in the real economy. "We need action on real side also on transparency on land acquisition, on transparency on construction, and on sales," he said.

More transparency in such matters would enable financiers to better track the flow of funds, which project was being funded by whom, and who all were the other financiers. He also said that entry of 22 new banks in the banking space would bring a "revolution" in the sector and enable smaller entities that were outside the formal sector to now access finance. Bandhan Bank and IDFC Bank that launched operations as universal banks were first off the blocks, with the RBI having given in-principle approval to 21 entities in total to start operations as payments and small finance banks. -Cogencis