India's corporate sector welcome's RBI repo rate cut amid COVID-19 outbreak
Mumbai/IBNS: The Indian corporate sector has reacted positively to the Reserve Bank of India's decision to slash the repo rate by 75 basis points to 4.4 per cent.
Making the announcement, RBI governor Shaktikanta Das said: "The repo rate has been reduced by 75 basis points to 4.4 per cent." He said: "Finance is the lifeline of the economy and keeping it flowing is a matter of paramount importance to the RBI."
Das also announced a moratorium of EMIs for three months on all outstanding loans.
He alerted: "There is a rising probability that large parts of the world will slip into recession."
He said India banking system remained safe and sound. "Your funds are safe," he said depositors. "COVID 19 is upon us but this too shall pass," he said.
Das made the announcement on a day when India is observing its third day of national lockdown.
Reacting on the developments, Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure Limited said: “The past few years have not been kind towards the residential real estate sector, as it continues to struggle under the grip of a severe liquidity crisis, unsold inventory and unfinished projects."
The slew of government initiatives in 2019 like setting up of Rs.25,000 Cr stress fund and consecutive repo rate cuts gave us the optimism that the sector will gain some momentum in 2020, he stated.
Lauding the government for rescuing the middle class and and those who make minimum wage amid coronavirus outbreak, he said, "Our government has taken some remarkable measures to curb this menace; the announcement of Rs 1.7 lakh crore relief package to help those hit the hardest by the Covid-19 lockdown is commendable."
"We also applaud RBI’s bold move of relaxing the repo rate by 75 basis points to 4.4%, as this will lead to reduction in home loan rates/ equated monthly instalments (EMIs) of borrowers, thereby taking some financial burden off them. These efforts are also bound to make the residential real estate sector more attractive for new home buyers as it will be cheaper to take new loans," he added.
"We are glad to see that the government and RBI are working together to combat the slowing GDP growth and inflation and help the real estate sector as it forms the backbone of several other sectors. These new announcements will also help lift the homebuyer sentiment, kick-starting the demand cycle for mid-range homes as well as affordable housing. With the stock market witnessing a lot of fluctuations in these times of uncertainty, we anticipate that a lot of people will consider investing in property as that is a more stable, long-term asset,” he pointed out.
On cut in interest rates and other RBI measures EEPC India Chairman Mr Ravi Sehgal said, "While the moratorium on all loans repayments for three months and 75 basis points cut in the interest rates would help exporters as well, the export sector has been the worst hit by the outbreak of Coronavirus and would thus need a bigger package of relief.
"The moratorium on loan repayments should be extended at least to six months to one year for exporters since the global economy is set to be slipping into a recession.
"With lockdown in almost all major economies of the world and the operations coming to a standstill within our own country, it is going to be a long haul for the exports to resume. Moreover, it takes years to develop and nurture exports markets and once the supply chain is broken, for whatever reasons, resumption is always challenging.
"Besides, exporters are dealing with the double whammy of export controls and import stoppages, bringing their operations to a virtual halt."
CEO & Country Head of JLL India, Mr. Ramesh Nair said, "This is a very significant move with substantial monetary policy intervention at a time when COVID -19 has impacted the economy at large.
"This is in conjunction with economic package announced by the finance minister yesterday for the poor. In addition to other benefits, the package is expected to benefit 3.5 crore registered construction workers. This is also a perfect orchestration of the joint efforts by the Central government, State governments and the Central Bank to deal with this global health crisis.
"In these unprecedented times, the 75 bps rate cut (bringing down current the repo rate to 4.4%) combined with a reduction of 90 bps in reverse repo rate and other measures to infuse liquidity into the system is a welcome move.
"The repo rate reduction has even breached the 2009 level mark when the economy was hit by the global financial crisis and the policy rate fell to 4.75 per cent. This is to ensure revival of growth, mitigate impact of covid19 while containing inflation.
"The reduction in reverse repo rate will encourage banks to resort to enhanced lending to productive sectors of the economy at a time when growth of credit is slowing down. It shows the central bank’s willingness to use all the instruments at their disposal to mitigate the impact of a global pandemic on the functioning and the stability of the Indian economy and the financial sector," he said.
The injected liquidity of 3.74 lakh crores along with the 3-month moratorium on all term loans by financial institutions will alleviate short-term liquidity concerns and help developers, as well as home buyers, survive in these uncertain times.
"It is a big relief for developers and home buyers to help them mitigate the challenges faced by them currently. It is pertinent to note that total outstanding loans of real estate developers from Commercial banks, NBFC s and HFCs is estimated to be around INR 4.5 lakh crore as of March 2020. At the same time, this moratorium will definitely benefit homebuyers as these financial institutions have lent an estimated INR 20 lakh core as of March 2020.
"It is important for immediate transmission of these rate cuts to the home buyer which will boost consumer sentiment. The state governments should also take necessary steps to utilise the cumulative INR 31,000 crore funds for the welfare of building & construction labourers to help those who are severely impacted by the economic disruption on the back of the lockdown," he said.
Samir Jasuja, MD & Founder - Propequity said, "This move is likely to bring some relief in a longer run. However, there won't be much boosting effects of the decision on the realty market as residential market is going to be hit, especially the luxury segment, and the buyers are likely to postpone their purchases for at least 6 months. Commercial real estate is also expected to come under stress and we could see some rental renegotiations going downwards in the coming quarters."