Policy measures to drive credit growth Realtors happy with relief, but wanted rate cut
■ Cash reserve ratio cut for home, auto & MSME loans
In a bid to lower interest rates for housing, auto, and micro small and medium enterprise (MSME) loans and push bank credit growth, the Reserve Bank of India (RBI) Thursday relaxed the requirements for banks to maintain the cash reserve ratio for these loans. The special dispensation will be for all bank credit to these sectors for a period of six months — between January 31 and July 31.
The central bank also extended External Benchmark Based Lending for better interest rate transmission to mediumsized enterprises. In September 2019, the RBI had mandated that banks would link all new floating rate personal or retail loans and floating rate loans to micro and small enterprises (MSEs) to an external benchmark effective October 1, 2019. Subsequently, most banks linked lending rates for housing, personal and
MSEs to RBI’s repo rate. According to RBI, in the October-December 2019 quarter, the weighted average lending rate of domestic banks on fresh loans declined by 18 basis points for housing loans, 87 bps for vehicle loans and 23 bps for loans to MSMEs. Consequently, RBI has announced that beginning April 1, 2020, pricing of bank loans to the medium enterprises would also be linked to an external benchmark to further strengthen monetary transmission and reduce the borrowing costs of these enterprises.
Reflecting its concerns on the financial sector, the RBI announced multiple measures to improve monetary policy transmission and boost credit growth such as infusion of longterm liquidity. The RBI announced a new ECBstyle long-term repo operations (LTRO) facility to give banks long-term liquidity by conducting term repos of one-year and three-year tenors of up to Rs 1 lakh crore at the policy rate. This will enable banks to fund at the repo rate at 5.15 per cent, below the existing deposit rates.
The central bank revamped the liquidity framework by dismantling quantitative ceilings for liquidity operations at the weighted average call rate versus one per cent of net demand and time liabilities; increasing scope to conduct longer-term variable rate repo/reverse repo operations exceeding 14 days and improving communications and transparency on liquidity operations.
The RBI eased guidelines on project loans to the commercial real estate sector by allowing a one-year extension on the date of commencement of project loans that have been delayed for reasons beyond the control of promoters, without attracting a downgrade of asset clarification. This brings them in line with other project loans in non-infrastructure space. The RBI will also be reviewing the regulations for housing finance companies, where it has recently taken over their supervision from the National Housing Bank.
The RBI extended the cutoff date for the one-time debt restructuring scheme for MSMEs which is meant for loans that were in default but “standard” as of January 1, 2019. This would help speed up monetary transmission, improve credit flow and help address the NPA problem to an extent.
The Reserve Bank provided some relief to the realty sector by extending asset downgrade of commercial project loans by a year and allowing scheduled commercial banks to provide incremental credit to the residential sector. However, the sector finds that the decision to keep repo rates unchanged will not address its biggest issue—low consumer demand.
“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,” the RBI said. This is in line with treatment accorded to other project loans for non-infrastructure sector and would complement the initiatives taken by the government in the real estate sector, the central bank said.
The industry welcomed the move. “This is a big move and will bring the much-needed relief to the cash-starved real estate sector - and to both developers and the housing finance companies from the liquidity perspective. It will help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them to completing several stuck projects,” said Anuj Puri, chairman, Anarcok Property Consultants.
According to Jaxay Shah, chairman, Credai National, RBI’s decision to permit extension of date for commercial projects stuck for reasons beyond control of the developers under institutional debt will be instrumental in bringing much-needed relief to developers.
Recognising the real estate sector as a productive sector having multiplier effects to support impulses of growth, the RBI allowed scheduled commercial banks 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 cash reserve ratio (CRR). This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020.
“With the lower provisioning requirement for retail loans extended to the housing segment, we hope that the new measure will translate into lower cost of loans for home buyers as well,” said Shishir Baijal, chairman and managing director, Knight Frank.
However, the sector has been looking forward for rate reduction and better transmission of rates to push demand at the consumer level.
“After a no-show Budget, the real estate sector was keenly looking towards the Reserve Bank of India (RBI) for providing some lending rate concessions to boost demand,” said Rajan Bandelkar, president, Nardeco Maharashtra.