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RBI cuts repo rate by 40 bps, extends moratorium on term loan EMIs

RBI cuts repo rate by 40 bps, extends moratorium on term loan EMIs

The Reserve Bank of India (RBI) has announced fresh repo rate cuts by 40 basis points, amongst other sops as liquidity boosting measures against the COVID-19 economic slowdown. The Central bank had announced repo rate cuts by 75 basis points in March this year.

Shaktikanta Das, the Reserve Bank of India (RBI) Governor, announced a series of cuts in significant policy rates to boost liquidity and kick-start the investment cycle, which has slowed down from the COVID-19 pandemic. While addressing the monetary policy committee meeting, he informed that the repo rate, the rate at which the RBI lends money to other banks, has been slashed by 40 basis points from 4.4 percent to four percent, while the reverse repo rate has been reduced to 3.35 percent.

In view of the crippling economic effects of the pandemic, the RBI has also extended the moratorium on term loan EMIs by three months, to August 31, 2020. The previously announced extension was until May 31, 2020, making it a total of six months moratorium starting from March 1, 2020. Additionally, the group exposure limit of banks has been raised to 30 percent from 25 percent for a temporary period until June 30, 2020.

In a previous revision in April, the reverse repo rate had been slashed from four percent to 3.75 percent under the Liquidity Adjustment Facility (LAF). The RBI Governor predicts the GDP growth for the ongoing fiscal year 2020-21 to be negative; however, he added that the second half of FY21 would see a gradual revival of demand and activity.

This rate revision comes as bad news for those dependent on income from Fixed Deposit (FD) interest rates as these will witness a downward movement. Those whose loans are linked to the Marginal Cost-based Lending Rate (MCLR) will have to wait for their banks to reduce their interest rates to enjoy the benefits of the repo rate cut. However, if their loans are directly linked to an external benchmark as mandated by the RBI, they can expect to see a direct impact on their loan interest rates.

Here are some industry reactions to the RBI’s measures:

Niranjan Hiranandani, President, NAREDCO

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. 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. Reducing the repo rate by 40 basis points to four percent will help the banks provide additional liquidity access to all the sectors. The industry welcomes the extension of term loan moratorium till August 31. The lending institutions are being permitted to restore the margins for working capital to the origin level by March 31, 2021. This is a step in the right direction. The industry body welcomes the announcement to convert the accumulated interest for the moratorium period into a term loan. It will also provide some relief as the borrower will not have to immediately repay the accumulated interest on the loan after the moratorium ends. Industry though awaits one-time debt restructuring as a holistic measure to give a breather to the industries across the board and help in its quick revival.

Satish Magar, President, CREDAI National

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. RBI has tried to ease the pressure on borrowers and has extended group exposure limit for lenders to corporates from 25 percent to 30 percent but this is not enough to solve the ongoing liquidity crisis. Government now needs to ensure that banks are forthcoming and are passing on the benefits to us currently.

Rohit Poddar, Managing Director, Poddar Housing and Development Ltd. and Joint Secretary, NAREDCO Maharashtra

The measures that the RBI is taking to try and boost the economy is positive, however they must insist on the transmission of liquidity and the rate cuts to the borrowers from the banks and financial institutions, which is currently not happening as fast as it should in the context of the pandemic. Furthermore, serious and effective steps are required to be taken to boost the demand side of the economy and spur consumption, which we hope will happen soon.

Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, ASSOCHAM – National Council on Real estate, Housing & Urban Development

Now the situation for homebuyers might improve further as home loan interest rates are expected to come down further. People, who have decided to buy a home during the lockdown period will take a quick decision if banks pass on the benefit. Steps by the RBI are aimed at easing the economy. Affordable housing will benefit the most as the buyers of this segment are very particular about the EMIs. With historically low EMIs, people will go out to buy and thus increase the demand.

Anshuman Magazine, Chairman & CEO – India, South East Asia, Middle East & Africa, CBRE

The RBI’s move to cut the repo rate by 40 basis points will have a positive effect on the residential property market. This is a clear step towards reducing lending rates, encouraging liquidity, preserving financial stability and supporting overall economic growth. The reduction in reverse repo rate will encourage banks to lend more and extension of a moratorium on EMIs on term loans by another six months and steps to ease the cash flow burden on borrowers will improve overall sentiments and market performance. It will also encourage consumers to borrow more from banks due to the lowering of lending rates.

Ashok Mohanani, Chairman, EKTA World & President-Elect NAREDCO, Maharashtra

After lowering a cut in repo rate by 75 basis points in the previous announcement, the RBI has today announced another cut on repo rate by 40 basis points from 4.4 percent to 4 percent followed by reverse repo rate at 3.35 percent. The announcement will indeed act as a remedial measure to ail the economy as the government previously lent its support by providing a fiscal and monetary stimulus worth Rs 20.97 lakh crore. This move by RBI is expected to reduce the cost of EMI on loans taken by the homebuyers.

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory

Repo rate at four percent is going to reduce the borrowing cost and contribute to demand generation drastically. The banks should immediately pass on the reduction in the repo to ensure that the objectives of demand creation and liquidity infusion are achieved. The extension of a moratorium on loans by another three months will help institutions and individuals alike in battling the ongoing crisis. The much-required liquidity in the market place is also going to get a boost from the measures announced by RBI today. We would also urge the government to focus on reducing the high transaction cost, which will go a long way in triggering a revival of the real estate sector post the lockdown.

Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group

Today’s rate cuts along with the further extension of loan moratoriums by 3 months is definitely a welcome move and will benefit the real estate sector in the near future. It will enable banks to lend even more and push many fence-sitters onto the market as home loan interest rates are expected to fall further. What needs to be seen is how quickly the banks pass on the benefits to the borrowers. All these steps augers well to cushion the impact of COVID-19 on the Indian economy.

Kamal Khetan, Chairman and Managing Director, Sunteck Realty Ltd

The 40 bps cut would give big boost to demand for credit appetite among new homebuyers to avail housing loan resulting in growth of real estate sector. We believe the announcements will help sustain positive market sentiments and give maximum mileage to organized and established developers.

Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani

The moratorium on housing EMI’s and deferment of interest payments by another three months will give a lot of relief to consumers as they can now rearrange their finances. Another repo cut by 40 basis points to 4 percent is also a welcome move and with the cost of funds coming down for banks now, borrowers will stand to gain as the EMIs on their home loan are expected to fall. This is another big announcement which will ease liquidity for developers. However, quick transmission will be key to the huge liquidity infused by RBI.

Harvinder Singh Sikka, MD, Sikka Group

This time it is likely that banks will transmit the benefits to customers quickly as RBI is likely to keep a watch on it. In the current scenario, it was important to take steps that help the economy start recovering. The latest announcements indicate that RBI is likely to ease its monetary policy for the financial system. Banks also should extend loans to the real estate sector, which in turn will play a role in the stability of the economy.

Ankit Kansal, MD and CEO, 360 Realtors

The RBI measures to reduce the repo rate and reverse repo rate is in continuation of the Central policies to build liquidity and enhance its circulation in the system. Real estate welcomes the prudent step. It will help in managing supply-side bottlenecks by providing better and easier credits to the developers. Likewise, it will boost demand due to cheaper home loans. The timing is also apt as everywhere we can see the partial suspension of the lockdown and things are gradually coming back to normal. In such circumstances, a positive step like this can give further confidence and foster faster revival.

Shishir Baijal, Chairman and Managing Director, Knight Frank India

We are delighted with the reduction in prime lending rates announced today by the RBI. With a cumulative 115 basis point rate cut by RBI as response to the impact of COVID-19, we are in line with the rate cuts announced by developed economies such as USA (150 bps) and UK (65 bps). Given the backdrop of an unprecedented economic situation, we are happy that the RBI has reduced the key policy rates and taken note of rate cut transmission to borrowers. The extension on the moratorium and improved terms will provide a breather to industry and household borrowers alike.

Rajat Goel, JMD, MRG World

The situation for homebuyers is likely to get better with reduced loan interest rates. The relaxation of three months will further help in easing the financial burden on the people who have taken multiple EMIs. Affordable housing will be able to emerge as an attractive option for people who are seeking promising investment avenues in this time of market uncertainty. We are hoping these benefits are quickly passed on to the end-users.

Yash Miglani, Managing Director, Migsun Group

We are happy to see that the government and apex bank are making efforts like never before to overcome the damage done to the economy due to COVID-19. Reduced repo rates are likely to benefit borrowers and developers. The extension on loan moratorium will support the people in these trying times. But as real estate is passing through a challenging phase, one-time loan restructuring that has been a long-standing demand is warranted at the earliest.

Anurag Mathur, CEO, Savills India

The RBI has underscored the magnitude of stress that has crept into the economy as a consequence of the global pandemic. By forecasting a negative GDP growth, as well as highlighting sharp shrinkage in industrial production and export, the RBI governor gave several indicators outlining the difficult path ahead. Considering these challenges, the RBI, as expected has yet again acted positively by lowering the repo rates by 40 bps taking it to 4 percent. Further, by extending the moratorium by another three months, it aims to ease the financial burden of several mid to small-sized businesses, which are faced with negligible cash inflows.

Ashish R. Puravankara, Managing Director, Puravankara Limited

The announcement by RBI today on revised repo rate standing at 4 percent , the extension of moratoriums until August 31 will provide relief to home buyers. The reduction of the repo rate by 40 bps will aid in ensuring adequate flow of capital in the market. We hope that all banks will incorporate the new announcements and pass down the benefits to loan seekers. While initiatives like this will certainly help in keeping the industry sentiments intact and motivate realtors, all the stakeholders of the sector should remain invested in bringing reforms and measures that will improve buyer sentiments.

Nimish Gupta, MD, RICS South Asia

It is heartening to note, that while the true depth and reach of the coronavirus are still not known, the RBI since February has been taking adequate steps to ensure demand is bolstered. This has been reinforced with today’s announcement as well, where repo rates have been reduced further by 40 basis points to 4 percent, as well as reverse repo rates being lowered to 3.35 percent. From a built environment sector’s perspective, the cut in interest rates will further aide in easing the on-going liquidity constraints for developers. This coupled with the further extension of loan moratoriums by 3 months up to August 31, 2020 also augurs well for the sector.

Rakesh Reddy, Director, Aparna Constructions & Estates

The measures outline plans to improve functioning of markets, increase investments by FPIs by voluntary retention route, support exports and imports, and allow extension of measures to ease financial stress. The fiscal, monetary and administrative measures will create conditions that will enable a gradual economic revival as we ease out of the lockdown. The extension of the moratorium on term loan repayments for another 3 months will be especially helpful for businesses with stretched financials due to the lockdown. Overall, the accommodative policy stance taken by the central bank will boost market sentiment and lend confidence to the financial system.

Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure Limited

These initiatives have raised hope as they will provide some financial relief to borrowers with their equated monthly instalments (EMIs) and make it cheaper to take new loans. For the residential real estate sector, this is great news as owning a home becomes more attractive for first-time buyers as well as investors. However, capital is still limited and would be rationed, despite lower interest rate, is costing more.

Ravindra Sudhalkar, CEO, Reliance Home Finance

This is yet another positive step taken by the RBI to boost liquidity situation in the economy, which would also provide reprieve to both buyers and developers of real estate. The measures to extend moratorium period by three months till August 31st will ease the stress on buyers and developers to honour their loan commitments. The repo rate cut by 40 basis points to 4 percent will encourage banks to increase their lending to HFC s and NBFCs. This will automatically translate into greater liquidity for the real estate sector and greater incentive for buyers to invest in properties.