RBI Monetary Policy 2020-21 - Industry Perspective!

RBI Monetary Policy 2020-2021 Highlights: The RBI maintained status quo as the MPC voted unanimously to hold rates steady. The repo rates have kept unchanged at 4%, and the RBI expects positive growth in Q3 and Q4. The real estate sector was expecting some additional announcements; however, the sector has to rely on the announcements made in the last few months only. Real estate experts feel that the demand is high, and the latest status quo of the RBI will not have any negative impact on it. Non-Policy Announcements 1. On Tap TLTRO – Extension of Sectors and Synergy with ECLGS 2.0 a. Banks can avail funds from RBI under TLRO to invest in sectors under ECLGS 2.0 b.  Banks can invest in papers, give loans to stressed sectors covered under ECLGS 2.0 2. Regional Rural Banks permitted to access LAF window, call money market 3.  Commercial & cooperative banks to not make any dividend pay-out from the profits of FY20 4. Different categories of NBFCs to be allowed to declare dividend as per a matrix of parameters 5. Discussion Paper on Scale-based Regulatory Framework for NBFCs by Jan 15, 2021 6.  Risk-Based Internal Audit to be extended to UCBs, NBFCs 7. Harmonisation of guidelines on appointment of statutory auditors for commercial banks, UCBs and NBFCs KEY POLICY ANNOUNCEMENTS 1. Repo rate left unchanged at 4%; status quo maintained for the third consecutive policy 2. MPC maintains accommodative stance at least during current FY & into the next year 3. All MPC members voted unanimously for a status quo, accommodative stance   Industry Experts Perspectives on RBI’s Monetary Policy 2020-21 ! Dr. Niranjan Hiranandani – National President – NAREDCO and MD- Hiranandani Group Accommodative stance necessary to revive growth: Dr. Hiranandani RBI needs to be more hawkish to tame inflation The monetary policy committee’s decision to keep key rates unchanged was on expected lines and may continue in the near future to support growth as private consumption has slowly started and several stalled projects have been revived due to the government’s efforts, stated ASSOCHAM and NAREDCO National President, Dr. Niranjan Hiranandani. The repo rate is kept unchanged at 4 percent and reverse repo rate too stands unchanged at 3.35 percent. The Reserve Bank of India needs to have a hawkish stance while looking at the inflation figures and try to taper it further in order to mitigate the supply-side pressure. “The pro-active stance of the government to tackle the supply side issues would be instrumental in reducing the food prices further. As the numbers show that the economy is recuperating at a quicker pace than anticipated is a very good sign. There are several sectors which are showing an upturn consolidating the fact that the GDP growth numbers would be positive soon,” he added. Home loans will continue to remain at attractive rates, this should augur well for home buying sentiment,” he added. “The projected real GDP growth for FY21 at -7.5 per cent vs -9.5 per cent projected earlier augurs well for the recovery story. Q3 growth is seen at 0.1 per cent; Q4 at 0.7 per cent bears out the RBI Governor’s statement on business sentiment of manufacturing firms ‘gradually improving’. RBI Governor’s proposal to expand on-tap TLTROs to cover other sectors is a positive move, the important thing he pointed out being that economic constraints have started to ease,” he concluded Limit for contactless card transactions to be raised from Rs 2,000 to Rs 5,000 per transaction from January and the announcement to make the RTGS system operational round the clock is a welcome step, Dr. Hiranandani said. The RBI announced that after the dismal 23.9 percent contraction in the April-June quarter, the economy has recovered with the July –September quarter contracting to 7.5 percent. The industry is anticipating the Jan-March quarter to be positive, he said.   Ms. Manju Yagnik, Vice Chairperson of Nahar Group and  Senior Vice President, NAREDCO (Maharashtra) "The apex bank's decision to keep the repo rate unchanged at 4% reflects the continuation of its accommodative stance ensuring the lowest lending rates at 6.9%. This will further boost the sentiment in the real estate market encouraging sales pushing the sector on a complete recovery trajectory. The government’s ongoing policy support on rates and taxes for the housing sector indicates that the worst is behind us. The Indian economy had already witnessed a good bounce back in July-September 2020 quarter, and the RBIs move will ensure a complete recovery by the end of next quarter.”   Parag Munot, Managing Director, Kalpataru Limited “RBI decision to keep policy rates un-changed is welcome and signals the government’s focus on fueling consumption. It is good news for homebuyers as home loan interest rates are expected to remain at current levels in the fiscal. Continuation of low rates, along with reduced stamp duty and various developer schemes will keep up the robust momentum. Importantly it will serve as the springboard for real estate growth in the next fiscal, as the economy recovers from pandemic’s impact.   Anuj Puri, Chairman - ANAROCK Property Consultants As was expected, the RBI has kept the repo rate unchanged. The threat of inflation looms large - it currently hovers above 7% - and the apex bank is tasked with reining it in while simultaneously fostering the green shoots of resuming consumption. On the positive side, an unchanged repo rate will ensure that home loan interest rates will not harden anytime soon. It is quite clear that increasing interest rates would impact overall demand at a time when the government is keen to boost consumption. However, there is no denying that consumer inflation is at the upper end of the apex bank’s band, and the policy repo rate has already been substantially reduced by 140 basis points in 2020. It goes without saying that the real estate industry's perennial hope is fixed on lower interest rates. This would be enabled by reducing the repo rate - a least in theory, given that transmission of reduced repo rates to bank interest rates has been slow at best. With real estate demand gradually returning, especially in the wake of developers’ discounts and freebies and reduced stamp duty charges (in Maharashtra), reduced repo rates would have given an added boost to the ongoing festive season.   Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani The RBI’s decision of keeping the repo rate unchanged was on expected lines owing to the rise in inflation in recent months. Even though the apex bank has kept rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates. Now the entire focus would be on how the government plans to combat the economic slowdown and boost demand. A series of measures in the form of capital injection, refinancing of banking institutions, policy impetus, subsidies, and offers are required to see a faster recovery. The country's economy recovered faster than expected in the July-September quarter. The growth in the economy has also been reflected in the real estate activities of the last quarter where both residential as well as commercial markets have seen a sharp increase in activities. Reduction in stamp duty charges in some states and varied offers during the festive season coupled with a rate cut would have surely boosted the buyer sentiment further. Serious buyers have realized that this is the best time to buy. The real estate industry in particular, stands to benefit due to several measures taken by the government so far. However, there is a lot that needs to be done for the sector to improve the pace of growth. We are looking forward to a bigger rate cut and sector-specific lending provisions to improve both the liquidity scenario and consumer spending ability.   Rakesh Reddy, Director, Aparna Constructions & Estates “The RBI’s decision to keep the repo rate unchanged for the third time in a row at 4 per cent will provide much needed encouragement to the real estate sector. The status quo is a positive sign for the sector which has been witnessing signs of revival in the past quarter. Of course, a further rate cut combined with the recent stamp duty reductions would have been optimal to comprehensively lift market sentiments. But a steady hand during this time will ensure long-term stability as our economy recovers. Maintaining the status quo is especially critical during economic recovery as any increase in the interest rate would have adversely affected housing demand and derailed momentum. This presents a great opportunity for home buyers who can take advantage of attractive home loan rates. The move indicates that lending rates are not expected to increase from current levels for the foreseeable future. As a result, this is expected to trigger the home buying sentiment in the market. However, the transmission of these rate cuts must be implemented with immediate effect to effectively bolster economic growth. Overall, the decision will have a positive impact on the real estate sector as the cost of financing for both developers and home buyers will not increase. We hope the RBI will continue to take positive steps to capitalise on the renewed growth of the sector and make it more enticing for home buyers.”   Murali Malayappan, Chairman and Managing Director, Shriram Properties Ltd. “We welcome RBI's decision to keep policy rates unchanged as it will lead to continuation of low interest rate on home loans. This along with the positive economic growth forecast for the second half of this fiscal will boost the housing demand. Well established players like us would see an increased rate of sales in the coming quarter, through this”   Manoj Gaur, MD, Gaurs Group & Chairman, Affordable Housing Committee, CREDAI – National “real estate will benefit from the Apex bank’s stance that it will use various instruments at an appropriate time to ensure ample liquidity is available in the system. The sector has repeatedly been saying that one of the major concerns is the liquidity, and things will be sorted if the RBI can ensure liquidity for the real estate sector. The demand for real estate assets is already high, and with low home loan interest rates, we see increased sales in the coming quarter. However, we were hopeful that the RBI would take a call on Input Tax Credit, which would have helped the buyers get more benefit.”   Pradeep Aggarwal, Founder & Chairman – Signature Global Group & Chairman - ASSOCHAM National Council on Real Estate, Housing and Urban “The affordable housing segment is already enjoying the increased demand, and the latest unchanged stance of RBI will not have much impact on the demand per se. In fact, the growth projections of RBI will instil positive sentiment in the market, which will translate into good numbers for the real estate sector too. If economy recovers, which is likely after the RBI said in the MPC review that it would maintain liquidity in the market, and the job market remains vibrant, then the affordable housing segment buyer will expedite the process of owning a property. Right now, we would say that we completely understand the stand taken by the RBI in this MPC, and hope that growth projections improve leading up to a vibrant market for the real estate sector” concluded    Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure Limited “For the third time in a row, RBI has decided to keep the repo rate unchanged at 4 per cent while maintaining an accommodative stance. Inflation and early bounce in some sectors perhaps requires this stance. The timely intervention during the beginning of pandemic did provide relief to the sector by enabling homebuyers to borrow at sub 7% interest rates and benefits extended for affordable homes. The Government has acknowledged importance of the real estate sector by introducing various measures such as the 20% circle rate exemption. This move clearly amplifies required correction in ready reckoner across several States. However, it is high time to truly unlock the potential of the sector by taking specific initiatives such as capital provisioning requirement for the banks to lend to the real estate sector till 100% and there is no linkage to rating of the company. We look forward to the permit for ECBs to be completed, leased out and income generating commercial assets. Remove listing requirements for FPI Bonds where end use is land acquisition. We are thankful to the Government for helping the sector grow in this new normal and look forward to their continued support.”   Ankush Kaul, President (Sales & Marketing) - Ambience Group "The constant vigil shown by the RBI is welcome. The decision to leave the key policy rate unchanged comes on expected lines. While the government and the RBI has been doing a lot, rising inflation, especially, for food items, commodities remain a big concern for people in general. There is a need to put a check on spread of COVID and disruptions like the farmers’ protest etc. These may collectively dampen the festive spirit and the upswing in home buying that we witnessed a few months back. The industry and the government should strive to revive homebuyer’s sentiments."    Ashish Shanker, Deputy MD & Head of Investment, Motilal Oswal Private Wealth Management RBI have prioritised growth over inflation. “This is an acknowledgment that inflation drivers seem to be more supply side led. An accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam. This will help push through govt borrowings in a year where the revenues are under pressure. Guidance is better than earlier on growth and flows. Positive for markets.”    Anurag Mathur, CEO, Savills India was of view that with the RBI keeping the lending benchmark lending rates unchanged, home loan interest rates are likely to stay at an all-time low and complement the other recent measures announced by the government, especially in the last stimulus package. Maintaining an accommodative stance is significant as it emphasizes the central bank’s focus on spurring demand which remains the highest economic concern at the moment. Additional allocation towards the PMAY-U and tax relief measures are a right step in revitalising the residential segment in a post-pandemic era. Fund infusion into the NIIF debt platform is also likely to benefit the real estate segment in an indirect and discreet manner.”   Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com “The RBI move to maintain status quo on policy rates was expected in the face of persistently high retail inflation and an already record low REPO rate of 4%. The earlier measures announced by the RBI, including the rationalization of risk-weightage norms for home loans linking it to LTV and restructuring of loans to developers on a project basis, will continue to help the housing sector.  Interest rates on home loans are already at sub-7% level, with banks offering further sweeteners such as processing fee waivers among many others. We hope banks will continue to lend vigorously to the real estate sector, the second-largest employment generating sector in India.”