rbi rate reduction ahead of festive season brings cheer in the sector

7/17/2019 Rbi Rate Reduction Ahead of Festive Season Brings Cheer in the Sector

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RBI RATE REDUCTION AHEAD OF FESTIVE SEASON BRINGS

CHEER IN THE SECTOR

In a much anticipated move by RBI considering the inflation entering comfort zone, the

repo rate has been slashed by 50 basis points. The new repo rate now stands at .!5 percent

from the previous !."5 percent. Reverse repo rate is now at 5.!5 percent# $ash Reserve Ratio

%$RR& at ' percent and (tatutory )i*uidity Ratio %()R& at "+.5 percent respectively, remains

unchanged. (ince the first bimonthly RBI policy review bac- in anuary, the ape/ body has

reduced the -ey rate by +"5 basis points or +."5 percent, bringing it down to .!5 percent

from percent. 1hat this suggests is that, ban-s will now be under pressure to lower their

lending rates, the benefit of which will be directly passed on to the customers via reduced

23Is.

4The target of percent inflation by anuary "0+ is li-ely to be achieved considering the

maor conditions that have been met since the last policy review in 6ugust. This move was

thus pretty much on the cards loo-ing at the economic recovery witnessed over the last

couple of months. 1ith various -ey ban-s in India already on a reducing rate spree, a rate

reduction by RBI here will open the gates for further rate reduction by ban-s, thus assisting

the customers with less pressure on their poc-ets7, elucidates 3r. 8ushagr6nsal, 9irector,

6nsal :ousing. 6dding to the fact, 3r. 6sho- ;upta, $39, 6nara India )td. avers 4RBI has

been e/tremely proactive in terms of bringing relief to the economy and pushing the ban-s

forward to provide final benefit directly to borrowers through reduced 23Is. Real estate

sector in particular was in dire need of repo rate reduction as we are standing right on theverge of final festive season of the year. (entiments will now become better as customers will

be e/pecting ban-s to lower their rates that will be profitable for them prior to a big purchase

such as, property7.

Perfect reasons to slash rate:

1ith monsoon season being highly unstable, wea-ening industrial production and investment

activities, retail and food inflation -ept under chec-, this decision has come out as a pro

active supply side management one. 49espite the monsoon deficiency and contained food

inflation pressure through resolute government actions by managing supply, the disinflationhas been *uite broadbased and inflation barring food and fuel has also come off its pea- in

une. (ince the beginning of this calendar year, RBI had assured of a rate cut cycle this year

which it has followed owning to the economic recovery and fair chances of meeting the target

inflation by anuary ne/t year. This move is greatly welcomed especially for this sector

considering the rising inventory levels which will now see a momentum if ban-s reduce the

lending rates, something that is *uite evident7, e/plains 3r. 3u-esh8hurana, 39,

RudraBuildwell.

The residual *uestion now becomes# the e/tent of transmission of these cuts. <ot many ban-s

have been following the rate cut cycle, the loss of which has been pushed onto the customers.

=n the flipside, maor ban-s in India such as (BI, I$I$I, :9>$ and few others have been



-eeping their lending rate cycle in sync with the RBI?s repo rate cycle. This has provided

relief to a maor chun- of buyers ta-ing loans for property. 6lso, ban-s with high li*uidity

can easily afford to decrease their lending rates without touching the deposit rates but ban-s

with lesser li*uidity are first forced to decrease the deposit rate which on the other hand

increases their li*uidity then can they bear the drop in the lending rates. 6 drop in the depositrate directly leads to lesser returns on investments such as fi/ed deposits, etc. Thus, maor

players of the ban-ing industry are able to satisfy the complete demand whereas other ban-s

can either provide higher returns on investments or charge less on the amount lent to the

public. 4(everal ban-s made reduction in lending rates earlier this month and many held bac-

as well. There e/ists a direct relation between reduction in lending rates by ban-s and an

increase in demand for property. It is then ust a matter of proper timing by the ban-s while

adusting the rates. >ew days from now, the festive season of the :indu calendar is about to

commence where massive demand is observed every year, and this is the time when potential

customers plan and allocate their funds for the big purchase. Thus, a fall in lending rates

today will promote the sentiments in the mar-et and allow people to strategize their

upcoming purchase. RBI has played its part well today and now the ball is in ban-s court7,

enlightens 3r. @ive- ;upta, 9irector, @ardhman 2states A 9evelopers %& )td.

Road to recoer! all clear:

>or a long while now, real estate sector has been reeling under heavy pressure of rising prices

and unsold inventory across all maor cities. The bigger problem is that these cities are the

perfect catchment areas for the developers due to the presence of ready infrastructure and

civic amenities for the future residents. 6lthough, each year we observe heavy footfall at

proect sites of these regions during the festival season and thus, a slow real estate sector gets

the much needed push each year towards the end of the calendar year. 41e were pretty sure

of a rate cut in this bimonthly policy of RBI as the ne/t two months are full of festivals and

this time around sentiments are usually flowing well. 6 reduced lending rate ahead of festival

season will ma-e the property prices loo- lighter to the customers as monthly instalments will

come down. This will enhance the purchasing power of the customers thereby allowing them

even go ahead with a better purchase. >or instance, due to reduced 23Is, one will be able to

afford a bigger unit or a much lavish one. :ence, a much awaited road towards the recovery

of this sector is loo-ing fairly visible7, states 3r. 6n-it 6ggarwal, $39, 9evi-a ;roup.

Ban"s follo#$n% the le%ac!:

>or the last few months, ban-s have been on a rate reduction spree due to continuous nods by

the RBI and fre*uent repo rate cuts as well. In the beginning of this month, :9>$ had

reduced its lending rate by C5 basis points bringing it down to D.C5 percent, standing

shouldertoshoulder with I$I$I and (BI. 6lthough, (BI has announced a further rate

reduction by '0 basis points, bringing its lending rate to the lowest in the industry at D.C0

percent which will be effective from 5th =ctober, "0+5. Reduced ban-ing rates will have a

positive impact on the demand for the sector, and with final festive season of the year about

to commence# it will be a winwin situation for all. 4The reduction in lending rates by ban-shas been coming at the right time as we are inching closer towards the final festive season of



the year where most property purchasing ta-es place. It was also imperative on the ban-s

behalf that these rates were reduced as fre*uent nods had already come from the RBI chief

and this time also, a good 50 basis points have been reduced. (till there is ample room for

lending rate reduction by ban-s as we see (BI has already announced a '0 basis points

reduction. The platform is now all set for the realty sector to deliver its goods in theupcoming festival season in India7, concludes 3r. 9eepa- 8apoor, resident$R296I

1estern E.. A 9irector, ;ulshan:omz.

rbi rate reduction ahead of festive season brings cheer in the sector

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