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RBI’s repo rate cut to boost real estate & automobile sectors

RBI’s repo rate cut to boost real estate & automobile sectors

Author | Ronald Menezes | Wednesday, Apr 06,2016 8:03 AM

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RBI’s repo rate cut to boost real estate & automobile sectors

The Reserve Bank of India cut its policy interest rate by a quarter percentage point on Tuesday. The repo rate was cut by 25 basis points to 6.50 percent, this being the lowest since January 2011. While the Cash Reserve Ratio has been kept unchanged, Statutory Liquidity Ratio (SLR) of scheduled banks has been reduced by 25 basis points from 21.5 percent to 21.25 percent of Net Demand and Time Liabilities (NDTL). Repo rate is the rate at which the central bank lends to banks while CRR and SLR are percentage of liabilities that banks have to hold in cash and liquid assets, respectively.

The real estate sector is pleased with the announcement of the rate cut as this could usher in more demand for buying homes as banks are expected to pass on the benefits to companies and home loan seekers. Houses being constructed in the newly allocated smart cities could also benefit from the cut.

Ashish Raheja, MD Raheja Universal, feels this could have a positive impact on the economy and could probably be the answer to a slump created by the recent hike in ready reckoner rates in Maharashtra. He said “This is a welcome step. This we believe will surely have a positive impact on the economy as well as across sectors at large. More specifically from the real estate sector perspective we believe that there will be some renewed interest from prospective home buyers who were hit recently by the ready reckoner rate hike across Maharashtra.”

Aakash Kumar, Chief Strategy Officer, Housing.com said, “The announcement of a 50-basis-point cut comes as a pleasant and much needed surprise. Post the announcement, some large banks have already considered cutting home loan interest rates on an immediate basis and we hope more will follow suit. Even though big impact of home loan rate revision on inventory uptake shall only kick in fully by next year, the news shall surely fuel the coming festive buying this Diwali as well.”

Kishore Bhatija, Managing Director, Real Estate Development, K Raheja Corp. added, “The repo rate cut by RBI is a step in the right direction. Although there were higher expectations of the cut, this is certainly good news for developers as well as buyers.  It is also encouraging to hear that going forward; the central bank’s policies will remain accommodative. We hope the banks will pass on the benefit to the industry.”

 The entire automobile sector could grow substantially if the benefits of the rate cuts get transferred to the borrowers. With regards to the drop in interest rates on home loans and auto loans creating more affordable EMI’s, Deepak Joshi, President and Chief Business Officer, Religare Housing Development Finance Corporation Ltd said “This (The rate cut) coupled with Marginal Cost of funds based Lending Rate - (MCLR) on which SBI has already taken a lead, will further reduce the lending rates in the market and increase credit off take. Also EMIs on retail consumer loans will further soften which will increase demand for auto and home loans.”

“The repo rate cut by 25 bps is a welcome move and will have a positive impact on the sector. This coupled with the passage of the Real Estate Bill and REIT augurs well for the sector. Also marginal cost of funds based lending rate - (MCLR) will reduce the lending rates in the market leading to an increase in credit off take. We hope that commercial banks follow suit by passing on the benefits to the end user,” added Prashant Mirkar, VP-Marketing & Sales, House of Hiranandani. 

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