RBI cuts reverse repo rate by 25 bps, takes steps to boost liquidity

April 17, 2020: The RBI on Friday slashed the reverse repo rate by 25 bps to 3.75 per cent, making it less attractive for banks to park cash with the central bank.
The RBI Governor, Shaktikanta Das while addressing the media second time after the lockdown, said that COVID-19 has challenged the ability of borrowers to repay. So, the 90-day NPA norm shall exclude the moratorium period. Period of resolution plan for NPAs to be extended now by 90 days. Loans given by NBFCs to commercial real estate will also get the same relief. This is to ease NBFCs and the real estate sector.

Other measures announced by the RBI include providing Rs 50,000 crore refinance to all India financial institutions, including Rs 10,000 crore to the NHB. In another major relief to developers, the RBI has further extended the date of commencement of commercial operations (DCCO) of project loans for commercial real estate projects which are delayed for reasons beyond the control of promoters.

The real estate fraternity was unanimous in hailing the RBI steps –

Dhruv Agarwala

Group CEO, Housing.com, Makaan.com,  Proptiger.com

The various measures announced by the RBI to maintain liquidity in the system and ease the flow of credit including reducing the reverse repo rate by 25 basis points will help ease some financial stress in the system. This move by the RBI will hopefully nudge banks to increase lending to various sectors of the economy, which is the need of the hour.

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Dr Niranjan Hiranandani
President, Assocham, NAREDCO

From the perspective of regulatory norms to spur an economic revival, the measures announced aim to maintain adequate liquidity in the system, facilitate bank credit flow and ease financial stress. These are absolutely welcome, given that economic activity has come to a standstill during the lockdown. The RBI had earlier permitted extension by one year without asset classification downgrade, if DCCO was delayed for reasons beyond control of promoters. This relief is now also allowed for NBFCs; loans by NBFCs to commercial real estate will get the same relief. This move will positively impact NBFCs and real estate. Today’s targeted liquidity transfusion measures aimed to improve the yield curve and incentivize banks to deploy more funding to the industry seems to be a kick-start step towards financial resilience.

Manoj Gaur
MD, Gaurs Group

The second announcement by the RBI during the lockdown period is an indication that the Government is working tirelessly to find out ways to address the situation. Real estate was demanding the steps that could help the sector and now it is again up to the banks to take a leaf out of RBI announcement where it has talked about the real estate sector and extend a helping hand to real estate.

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Ramesh Nair
CEO & Country Head, JLL India

The steps undertaken by the Reserve Bank of India to ease the liquidity concern of Banks, NBFCs and other financial intermediaries is an acknowledgement of the liquidity issues faced by the financial system of the country as well as the industry.

Today’s announcement will give an initial fillip to the real estate sector. The Central Bank’s focus to provide credit flow to NBFCs is a key step. This will provide a boost to various real estate activities.

As per the latest data by RBI, NBFCs outstanding credit to the commercial real estate stood at INR 1,29,359 crore as of end September 2019. The relaxation of NPA classification norms and extension of one year for commencement of projects to real estate developers by NBFCs will provide the much needed relief to the sector.

The refinance facility to the extent of INR 10,000 crore to NHB is a welcome move to provide the much needed liquidity to Housing Finance Companies.

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

RBI’s recently announced liquidity measures are a clear step towards encouraging liquidity in the banking system, preserving financial stability and supporting overall economic growth. In the wake of the evolving Covid-19 situation; the announcement in the reverse repo rate cut from 4 per cent to 3.75 percent should further push banks to lend to the productive sectors of the economy. Announcement of refinancing facility for leading financial institutions such as NABARD and SIDBI, relaxation of stressed asset classification and resolution norms and provision of another window of Targeted Long Term Repo Operations worth INR 50,000 cr will provide additional fiscal stimulus to the economy. To further ease flow of funds to the housing sector, the National Housing Bank (NHB) has also been provided with a refinance facility of Rs. 10,000 Cr. for Housing Finance Companies (HFCs) as additional liquidity for individual housing loans, which is a much-needed boost at this time.”

Anuj Puri
Chairman – ANAROCK Property Consultants

Among the various measures announced, commendably its allotment of INR 10,000 crore to National Housing Bank is a big move for the real estate sector reeling under the liquidity crisis. It will help provide capital to HFCs and eventually provide major relief to developers battling liquidity issues in COVID-19 times. Further, RBI has reduced the reverse repo rates by 25 bps – it now stands at 3.75%. This is another big step as the rate cut will definitely send out positive signals in the current times, and will enable banks to lend even more. Also, in another major relief to developers, the RBI has further extended the date of commencement of commercial operations (DCCO) of project loans for commercial real estate projects which are delayed for reasons beyond the control of promoters. This is indeed a big move and will bring much-needed relief to cash-starved developers. It will help in easing out time for maintaining and managing cash flows for these developers.

Anurag Mathur
CEO, Savills India

RBI has continued the fight against the COVID-19 pandemic, taking measures to maintain liquidity in the system, facilitate and incentivise bank credit flows, ease financial stress and enable formal working of the markets. The central bank’s decision to pump in Rs 10,000 crore to NHB for refinancing companies is expected to address some of the liquidity concerns in the residential segment.

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RBI had earlier allowed an extension of the date of commencement of commercial operations (DCCO) by one year without asset classification downgrade for reasons beyond the control of promoters. This relief measure has now been extended to NBFC loans to commercial real estate as well- easing the concerns of NBFCs and real estate sector to a certain extent. This will also bring temporary relief to the entire financial system and borrowers, including those real estate firms in weaker financial positions.

Sanjay Gupta
CMD, APL Apollo

At a time when the Coronavirus outbreak has literally thrown a spanner in the wheels of India’s economic growth, RBI’s announcement to cut reverse repo rate by 25 basis points has come as the much-needed relief for all the stakeholders of the industry. Now with the availability of more funds for lending, it will be easier for the banks to pass on the benefits of recently announced repo rate reduction to the consumers. We expect the interest rates on all types of loans will come down immediately which will boost consumer demand and in turn prompt industries to ramp up their productions, obviously it will be a win-win situation for all.

Uddhav Poddar
MD, Bhumika Group

I welcome the announcements made by the RBI Governor. RBI has taken these measures as they realised that despite lowering of rates the banks were only lending to large corporates and not to mid-size and small businesses or to real estate, hence RBI has provided liquidity to NBFC’s which mainly service the mid and small businesses and to the real estate sector. Real estate is a capital intensive business and needs liquidity infusion and we hope this and more steps from the RBI will prompt banks and NBFC’s to provide the required liquidity in the sector “.

Ajay Chaudhary
Chairman and Managing Director, Ace Group

We fully appreciate the timely and well thought out measures taken by the apex bank to mitigate the impact of Coronavirus crisis and provide relief to both NBFCs and the real estate sector. Especially when the macroeconomic and financial landscape has deteriorated due to liquidity crunch, such a move will help both residential and commercial real estate segments tide over the current depressing market scenario with the availability of surplus liquidity in the banking system in the backdrop of 25 BPS cut in reverse repo rate. Now the onus lies on the banks and the NBFCs to ensure a smooth transition of the benefits to the consumers and help them realise their dreams of owning a home by providing home loan on cheaper interest rates.

Deepak Goyal
CFO, APL Apollo

At a time when the Coronavirus outbreak has literally thrown a spanner in the wheels of India’s economic growth, RBI’s announcement to cut reverse repo rate by 25 basis points has come as the much-needed relief for all the stakeholders of the industry. Now with the availability of more funds for lending, it will be easier for the banks to pass on the benefits of recently announced repo rate reduction to the consumers. We expect the interest rates on all types of loans will come down immediately which will boost consumer demand and in turn prompt industries to ramp up their productions, obviously it will be a win-win situation for all.

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Pritam Bisht
Director Strategy and Business Development, Xanadu Realty

It is definitively a positive in the immediate short run – Moratorium not to be counted for NPAs is good for accounts that were on the verge of SMA1/2 or NPA in the month of March 20. But in isolation it is just kicking the can down the road. The real impact will come when the liquidity injected into NBFCs will come into existing and fresh Real Estate projects. While 50,000 cr. to start with is a huge amount for RE but we need to see a) what amount actually finds its way into businesses and economy in terms of disbursements, and b) what share does RE Projects get.

Vikas Bhasin
CMD, Saya Homes

The measures are initial steps but the sector needs a huge infusion of money, which should be addressed immediately. Liquidity package should be immediately given to the sector which under severe stress. The recent announcements are not huge enough to take care of the liquidity needs. With the latest announcement, it was clear that the government has realized the importance of the real estate sector and so we demand that relief package should be announced at the earliest.

Som Mandal
Managing Partner, Fox Mandal

In the current depressing scenario marred by the total lockdown due to COVID-19 outbreak, the RBI has emerged as a bellwether for the Indian economy by announcing special refinance facilities amounting to Rs 50000 crore to NHB, SIDBI and NABARD. Altogether this move will go a long way in meeting the credit requirements especially in rural and small scale industries segment which will play a vital role in boosting up the Indian economy in terms of employment and GDP growth. Further, the 25 basis points reduction in repo rate announced by the RBI will encourage banks to help productive sectors of the economy to meet their credit requirements through the surplus funds since the banks will now have more money to lend to the customers.

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Ishanee Sharma
Advocate

For the real estate sector facing the most challenging dual crisis of the ongoing recession and a sharp dip in demand due to COVID-19 impact, the RBI’s move of lowering the reverse repo rate by 25 bps has come as a pleasant surprise which will surely inject optimism and enthusiasm in the market. While it will lead to more liquidity in the system that means infusion of funds for all stakeholders of the economy, it will surely provide relief to the industry by mitigating the emerging fears and helping the economy bounce back on the growth track. Apart from reviving the market sentiments, it will further result in bringing down the home loan rates and help the industry overcome the current devastating scenario filled with uncertainty.

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