RBI joins forces in protecting Indian economy against the coronavirus outbreak
While the novel Coronavirus or Covid-19 is spreading like wildfire its negative impact on Indian economy has started becoming visible. To contain the spread of this deadly virus a nationwide complete lockdown for 21 days has been announced and it has already spelled disaster for the struggling Indian economy. The outbreak of this virus and the lockdown has ravaged various industries and the real estate sector is no exception.
Painting a grim picture and causing significant disruptions the lockdown has resulted in bringing all the ongoing construction work to a grinding halt, leading to heavy job losses. Amid all these negative developments, the Reserve Bank of India (RBI) has come up with some positive announcements with the aim to rescue the country’s sagging economy of which the Real Estate Sector is an important contributor as the second largest employer. RBI has slashed the repo rate by 75 basis points (0.75 percentage point), besides announcing a moratorium of three months of EMIs on all outstanding loans.
The apex bank has also announced a reduction of CRR for all banks by 100 basis points which will result in the release Rs 1,37,000 crore across the banking system. The RBI has also raised the marginal standing facility (MSF) window that will allow banks to get more funds if needed and it has also announced targeted long term repo operations amounting to Rs 1 lakh crore. These three measures altogether will release overall liquidity to the tune of Rs 3.74 lakh crore in the system.
“At this tumultuous time when the Indian economy is facing headwinds due to Covid-19 pandemic, RBI has emerged as a saviour by providing a substantial reduction in repo rate and Cash Reserve Ratio (CRR) which will go a long way in reviving the market sentiments,” said a highly placed official of a leading home finance company, adding that these measures will surely result in bringing down the home loan rates and help mitigate the pressure upon the homebuyers due to the downturn in real estate,” said a highly placed executive of a leading housing finance company.
“Further, the three months moratorium on loans and EMIs is another excellent and timely move that will take away much of the worries of the stakeholders of the Indian real estate sector due to the ongoing crisis situation emanating out of Covid-19. The infusion of liquidity amounting to Rs 3.75 lakh crore in the system is another commendable step taken which will surely revitalise the financial institutions. All these progressive and timely measures coupled with Rs 1.75 lakh crore fiscal relief package announced by the finance minister will surely help in mitigating the emerging fears and helping the economy bounce back on the growth track,” he added.
Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company, said, ‘The policy measures announced are big moves by the central bank to address concerns on liquidity and facilitating the flow of credit in the economy. This will ensure that adequate liquidity is available in the system to tide over the prevailing crisis period.” The central banker has adopted a four-pronged approach to managing the financial system which includes increasing liquidity, lowering the policy rates, and provisioning of loan moratorium coupled with asset classification forbearance.
Niranjan Hiranandani, President, NAREDCO said, “Fresh liquidity of Rs 3.74 lakh crore injected into the system by unleashing staunch arsenal support by strong fiscal measures announced at the crucial time when the Indian economy is battling the exponential contagion.” He added that the RBI has rightly packaged the relief measures by amplifying all the best instruments to act as an economic troubleshooter, salvaging Indian economic slump amidst world recession. Stakeholders in the Indian economy will heave a sigh of relief, as these moves reflect the right measures to take on the economic crisis caused by the COVID-19 pandemic. “As the RBI Governor pointed out, these moves will enhance liquidity and ensure smooth functioning of financial institutions, while the EMI moratorium will ensure no impact on credit ratings on loan repayments,” added Hiranandani. “The volume of measures carried out by the apex bank to infuse liquidity amounting to Rs 3.75 lakh crore back in the system is robust and applauded to uplift market sentiments. This fiscal relief package in addition to the FM’s Rs 1.7 lakh crore relief package ensures that the government is vigilant to retrieve nation out of economic pain and safeguard job loss,” he added.
Rajan Bendelkar, President, Western Region, NAREDCO and Director, Raunak Group said, “The RBI’s much – needed liquidity infusion of Rs 3.74 Lakh crore into the economy comes as a big relief for the country, its markets and the people who are battling a COVID – 19 war in already prevailing recessionary conditions.” “The repo, reverse repo rate and CRR cuts would extend more lending powers to the banks. It’s an attempt to ensure financial stability and confidence that the financial markets needed. A moratorium of three months on repayment of loans and interest thereon, with a further assurance of not classifying such assets for downgrading, will give relief to the homebuyers and businesses,” he said.
Kaushal Agarwal, Chairman of The Guardians Real Estate Advisory added, “The steep cut in the repo and reverse repo rates by 75 and 90 basis points is in-line with announcements made by Central Banks across the world, to mitigate the impact of the Coronavirus. At a time when there is a looming concern of the economy slipping into a recession, the announcements by the finance minister and the RBI depict the responsiveness of our financial institutions.” He said that the relatively higher reduction in the reverse repo and the CRR is bound to push banks to look at increased lending, thereby ensuring attractive lending rates. With the Repo now, at 4.40%, the banks are expected to pass on the benefits of the current and the previous rate cuts to the customers which will reduce the borrowing cost for the home-seeker significantly and have a positive impact on Real Estate.
Anurag Mathur, Chief Executive Officer, Savills India however, opined, “While it is still early to assess the economic impact of the pandemic, the rapid spread of COVID-19 across the globe has disrupted several business activities. For the real estate industry, Covid 19 situation could prove to be an additional dampener in the short term as the sector is already under intense pressure because of the ongoing liquidity crunch and weak market sentiment.” He added, “It is important to note that these are temporary disruptions and would not hold back the economy and the industry in the long run. We do not see any significant impact on investments into the sector in the long run because of the pandemic.”
RBI’s move is treading along the lines of its western peers like US, UK, Australia as well as New Zealand who have all announced emergency rate cut to protect their economy against recession due to coronavirus spread. In India, the recent rate cuts by RBI have elicited a negligible response in terms of boosting housing uptake. However, both these the back to back relief packages and the announcements made by the finance minister and the RBI are expected to bring some good tidings for the fence-sitters waiting for so long for the perfect opportunity to invest in the real estate sector.
