Experts across various sectors have hailed the slew of measures unveiled by the Reserve Bank of India (RBI) on Friday. Earlier in the day, the central bank slashed repo rate by 75 basis points from 5.15 per cent to 4.4 per cent.
Different sections of the industry that were facing slowdown seemed optimistic about the measures taken by the RBI to reduce the impact of the COVID-19 on the economy. It is also being hoped that given the gravity of the situation, further actions by the RBI and the government are likely in the coming weeks.
Experts from different sectors feel the steps will ease some of the burden on the financial system and aid the credit flow to the economy. Representatives, especially from the real estate sector, have expressed happiness over the move. It is expected the realty sector has been observing a slowdown with limited sales and new launches. However, the lending rate cut will ease the financial stress on the sector.
“RBI’s announcement of a massive repo rate cut of 75 bps coupled with three months moratorium of EMIs on all outstanding loans is the biggest move that India has so far made to counter the COVID-19 fallout. It will effectively benefit all sectors, including real estate. Given this time period, the RBI will ensure that the benefit of the rate cut is directly passed on to actual consumers, which could eventually translate into more home loan takers. Additionally, this move will encourage banks to lend more and also enable industries to borrow,” observed Anuj Puri, chairman, ANAROCK Property Consultants.
Further, he believes that the three-month moratorium will be a major relief to all stakeholders concerned, including home loan borrowers and developers. “Developers will get breathing space to get their financial act together, at least for now. Moreover, the fact that non-payment of EMIs will not cause loans to turn bad is a major relief,” remarked Puri.
Many felt that the sharp cuts in the repo and reverse repo rates are in tune with announcements by central banks across the world to mitigate the impact of the coronavirus. The moratorium on payments of term loan instalments and interest on working capital will prove to be a much desired relief for individuals and now it needs quick transmission for maximum impact.
“It will reduce the borrowing cost for home-seekers significantly and have a positive impact on the real estate. Banks should do all they can to keep credit flowing now. All these progressive and timely measures will push up the demand curve in the economy and keep the consumption cycle on. The assurance by the RBI governor that further steps will be taken down the road, if problems persist is also noteworthy. Overall, the measures will give a boost to the macro economy and ensure financial stability,” said Lincoln Bennet Rodrigues, founder and chairman of Bennet & Bernard Group, a luxury real estate developer from Goa.
Industry experts feel that the RBI's announcements have checked all the required boxes of rate cut, liquidity infusion and moratorium. These steps will help the economy to stay stable despite the lockdown and economic disruption.
“The sharp repo rate cut of 75 bps by the RBI is a step in the right direction. Sharper cut in reverse repo rate by 90 bps will compel banks to lend instead of parking surplus liquidity with the RBI. The cut in CRR by 100 bps and the Long Term Repo auction (LTRO) will infuse liquidity into the systems, which seems to be the crying need of the hour. The moratorium on term loans and deferment of interest on working capital by three months will be very helpful at this point when most businesses are unable to have a steady cash flow,” remarked Shishir Baijal, Chairman and Managing Director, Knight Frank India.
It is to be noted that in the current situation, a revised repo rate of 4.40 per cent is expected to benefit a large segment of businesses and taxpayers. In addition, the expected infusion of liquidity to the tune of Rs 2.8 lakh crore via various instruments will be equal to 1.4 per cent of the GDP. The three-month moratorium on the EMI’s is set to be a big relief for borrowers and they can also safeguard their credit score.
“LTRO in corporate bonds eases 'crowding out' of the private sector to some extent, thus creating an environment where large fiscal stimulus are being absorbed by the market with limited impact on yields. These moves will thus create space for further targeted fiscal measures by the government,” said Mihir Vora, Director and Chief Investment Officer, Max Life Insurance.
Experts point out that this move by the RBI will give a short-term boost to all sectors with respect to financial burden through moratorium on all term loans (all financial institutions), deferment of interest payment on working capital facilities, and easing working capital financing through cash credit/overdraft.
“This will also help all sectors at risk from the lockdowns to tide over the period with respect to their obligations to the financial sector. We await the borrowing calendar of the government (likely on March 30) to understand any higher-than-expected borrowing, direct deficit financing by RBI with respect to stimulus provided specifically for COVID-19, and issuance of special securities to FPIs as per budget announcement,” observed Suvodeep Rakshit, Vice President and Senior Economist, Kotak Institutional Equities.
Many industry experts also feel that such measures were unanticipated and would restore confidence of the market, restrict foreign capital outflows, both in the debt and equity markets, and will help in arresting the depreciation of rupee. Experts say that mitigating debt servicing burden to prevent transmission of financial stress to the real economy was much needed as various countries globally have deferred loan payments from three to six months.
“Banks might still face difficulties to meet the capital adequacy norms which we expect will be further relaxed by the RBI during the short term. The deferment of increment capital conservation buffer from March to September 2020 will help to an extent in this regard. While some of these measures are short term in nature, long-term structural measures such as widening the existing policy rate corridor from 50 bps to 65 bps and conducting LTRO is laudable. This is expected to bring down the cost of funds for banks, enable better transmission of monetary policy, manage bond yields, reduce the current redemption pressures in the debt market and boost working capital finance,” pointed out Dr Arun Singh, Chief Economist at Dun and Bradstreet.
