RBI’s repo cut evokes mixed response from developers, factory owners

The move may not address all prevailing financial crisis that the real estate sector is facing currently, said experts.

The Reserve Bank of India’s (RBI) move to cut repo rate has evoked a mixed response from developers and factory owners in Noida and Greater Noida. The RBI has taken the step to address liquidity issues of banks and housing finance companies, which may impact the real estate sector and industry at large.

The RBI on Friday announced a series of measures to infuse liquidity in the system and provide relief to borrowers amid the coronavirus disease (Covid-19) outbreak (PTI)

The move may not address all prevailing financial crisis that the real estate sector is facing currently, said experts.

The RBI on Friday announced a series of measures to infuse liquidity in the system and provide relief to borrowers amid the coronavirus disease (Covid-19) outbreak. The RBI has cut the reverse repo rate by 25 basis points — from 4% to 3.75% — encouraging banks to “deploy surplus funds” and lend more, a move that will, in turn, result in cash in the hands of the borrower. One basis point is a hundredth of a percentage point.

Repo rate is the rate at which the RBI lends money to commercial banks in the event of a shortfall of funds. The reverse repo rate is a mechanism, wherein the RBI borrows money from banks, in case of excess liquidity in the market.

The RBI has made available an additional ₹50,000 crore liquidity for National Bank for Agriculture and Rural Development (Nabard), Small Industrial Development Bank of India (Sidbi) and National Housing Bank (NHB).

“₹10,000 crore additional funds will be available for real estate projects with the banks after the RBI’s decision. But it will have limited impact because the RBI is yet to allow restructuring of existing loans taken by builders. Via video conferencing with minister of state (independent charge) of the ministry of housing and urban affairs, on Friday, we demanded that existing loans should be rescheduled and, developers should get additional time to repay the remainder and fresh loans should be provided to fuel growth,” said RK Arora, president of the Uttar Pradesh chapter for National Real Estate Development Council (Naredco), a builders’ group.

The RBI has made available ₹25,000 crore, of the ₹50,000 crore, to rural areas and ₹15,000 crore for industry, besides the ₹10,000 crore for real estate sector.

“The benefit of rate cut must be passed on to retail customer by banks. The rate cut will provide some liquidity to banks, but the RBI must issue strict instructions that the actual benefit must be passed on to retail customers,” said Getambar Anand, ex-national president of the Confederation of Real Estate Developers Association of India (Credai) and the chairman and managing director of ATS Group.

Noida Entrepreneurs’ Association, which has least 10,000 factory owners as members, said that the new announcements will not help them deal with the crisis caused by the pandemic. “When every big or small business is shut and funds’ liquidation is stopped completely, the recent announcement has no meaning as we are failing to repay existing loans. The recent announcement only allows banks to give more loans, whereas we require interest-free loans and permission to start our businesses,” said Vipin Malhan, president of NEA.

However, CREDAI president for West UP, Prashant Kumar Tiwari, said, “The RBI’s move will address the liquidity crisis being witnessed by the real estate sector. We hope that the government will take more decisions to boost growth in this sector.” CREDAI members had also interacted with Puri via videoconferencing.