RBI announces several measures to accelerate economy
ECONOMY & POLICY

RBI announces several measures to accelerate economy

In a major move to boost liquidity in the market, the Reserve Bank of India (RBI) Governor Shaktikanta Das today announced several additional measures to accelerate the economy and facilitate bank credit flows in Lockdown 2.0. Among the various measures announced, commendably its allotment of Rs 100 billion 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,” says Anuj Puri, Chairman, Anarock Property Consultants.

Further, RBI has reduced the reverse repo rates by 25 bps – it now stands at 3.75 per cent. “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,” adds Puri.

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,” according to Puri.

Also read: RBI Governor: Interest rates to be cut by 75 bp

Adds Ramesh Nair, CEO and Country Head, JLL India, “The steps undertaken by the RBI 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 RS 1,293.59 billion 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 Rs 100 billion to NHB is a welcome move to provide the much needed liquidity to Housing Finance Companies.”

RBI has relaxed regulatory measures to transfuse liquidity, bring financial stability, avers Dr Niranjan Hiranandani, President, ASSOCHAM and NAREDCO. He goes on to add: “The perception that authorities had focused only on saving lives and not livelihood was dispelled today, with the RBI Governor’s announcements which focus on enhancing liquidity as also specific measures to deal with the extraordinary set of circumstances arising out of the COVID-19 crisis. 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. For real estate, the announcement that loans given by NBFCs to real estate companies would get similar benefits as given by the scheduled commercial banks was ‘positive’. 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.”

He welcomed the reverse repo rate being revised from 4 per cent to 3.75 per cent, saying it would enhance liquidity in the choked economy. “This encourages banks to deploy funding to the sectors in need. On similar lines, the announcement on the 90-day NPA norm not to apply on the moratorium granted on existing loans by banks; the LCR requirement of banks having been brought down to 80 per cent from 100 per cent as also banks not to make any further dividend pay-outs in view of the financial difficulties arising from the COVID-19 crisis were instrumental step in right directions to salvage economic meltdown.”

India Inc. particularly appreciates the RBI Governor’s statement that the RBI is monitoring the situation that is developing due to the COVID-19 outbreak and will use all its tools to deal with the pandemic fallout. The liquidity management measures include the second LTRO, which is worth at least Rs 500 billion, what was welcome was the announcement that at least 50 per cent of this must go-to mid and small-sized NBFCs and MFIs. The Rs 500 billion special refinance facilities to NHB, SIDBI and NABARD would also play a constructive role. Added Dr Hiranandani, “The positive GDP growth forecast by IMF for India at 7.4 per cent the post-COVID crisis is silver lining amid dark terrain. Today’s overarching financial instrumental steps announced by RBI assured the constant monitoring of the daunting Human-Economic crisis. Today’s targeted liquidity transfusion measures aimed to improve the yield curve and incentivise banks to deploy more funding to the industry seems to be a kick-start step towards financial resilience,” he concluded.

Also read: Real estate players in a huge soup because of CoVID-19, says Dr Niranjan Hiranandani

For Anshuman Magazine, Chairman & CEO-India, South East Asia, Middle East & Africa, CBRE, 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. He says, “In the wake of the evolving COVID-19 situation; the announcement in the reverse repo rate cut from 4 per cent to 3.75 per cent should further push banks to lend to the productive sectors of the economy. In addition to this, RBI has also announced that loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks. 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 Rs 500 billion 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 100 billion for Housing Finance Companies (HFCs) as additional liquidity for individual housing loans, which is a much needed boost at this time.”

“We are extremely delighted and find a great sense of reassurance with the central bank taking cognizance of specific problems faced by real estate sector and proactively taking targeted measures to address those issues,” adds Shishir Baijal, Chairman & Managing Director, Knight Frank India. “The measures taken for liquidity support to NBFCs, HFCs and MFIs will meaningfully help the cause of the real estate sector. The move on reduction of reverse repo rate by 25 basis points shall push banks to open up the credit flow to economic activities. Similarly, allowing a 90-day extension for asset classification to loans that have been granted moratorium window is a critical step to assuage credit quality concern of lenders. Considering the lockdown and the impact on migrant labour workforce, there will be an inevitable delay in construction activity in real estate projects. Taking note of the situation, the central bank has provided one year project completion extension on asset classification for NBFC loans to CRE segment. Considering NBFCs have been very active in this segment, this announcement will ease the pressure of this segment too.”

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com, adds that 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.”

Infusion of liquidity in the market is of utmost importance and the latest announcement will definitely help the economy, believes Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM. “This time, the RBI has addressed the realty sector too, which is a clear indication that the government understands the importance of the second largest employer in India. All the economic machinery has to work together to make sure the country comes out of this conundrum as soon as possible.”

Today’s announcements by RBI are steps that would maintain adequate liquidity in the system, incentivise bank credit flows and lessen the financial stress, added Kamal Khetan, Chairman and Managing Director, Sunteck Realty. “The encouraging signs will uplift the positive sentiment of the real estate sector. The relaxation of asset classification norms will ease the stress on NBFC lending to the real estate sector besides ensuring stable costs of funds and avoiding distress sale of assets by developers. The move to conduct TLTRO 2.0 with an amount of Rs 500 billion will help NBFCs and HFCs as banks would be required to allocate 50 per cent of the funds to them. The special finance facility extended to financial institutions, especially NHB will further boost the credit to the realty sector. In the current time where market sentiments need to improve, the announced measures will help the organised and established developers to gain maximum mileage and drive sales in the upcoming time.”

Ramesh Nair and Dhruv Agarwala were also panellists for our recently held webinar on the Real Estate Challenge. Click here to read more on what they have to say about the sector. 

Related Stories