RBI Cuts Repo Rates, Developers Welcome Move

The wait is finally over.

In a much anticipated monetary review policy, Reserve Bank Governor Raghuram Rajan today cut the repo rate by 25 basis points to 7.25 per cent. In the backdrop of marked slowdown, the move has come across as big relief for the industry.

This is the third time in the current fiscal that the central bank has slashed the interest rates. Following RBI’s decision, commercial banks are most likely to slash interest rates on home loans soon. Meanwhile, the cash reserve ratio, which is the amount of money banks have to keep with the RBI, was left unchanged at 4 per cent.

As expected, following the decision, State Bank of India (SBI)  reduced their interest rates on home loans by 15 basic points. The new rates are pegged at 9.70 per cent as opposed to 9.85 per cent.

Industry Reaction

Welcoming the move, Pradeep Jain, Chairman, Parsvnath Developers Ltd. says, ‘We were expecting the move considering the realty sector has been struggling since last few quarters with increasing inventories and low demands. We hope that more banks will now pass on the benefit to customers thereby stimulating the overall demand. Such liberal moves coupled with policy reforms are necessary for the revival of the real estate sector in our country.”

Reiterating the same, Manoj Gaur, MD, Gaursons India Ltd says that ‘with this move, stakeholders are now expecting the sales to improve as more potential customers will think of buying homes as the interest rates will be reduced. Now we have to wait and see that when will the banks and Home loan providers will reduce the interest rate.”

With weakening rupee and core sector index shrinking to 0.4 percent in the month of April, this move by RBI shows aggressive decision making which will be very crucial for the upcoming months. Reiterating the same, Deepak Kapoor, President CREDAI – Western U.P. & Director Gulshan Homz says, ‘the move was much anticipated as well with manufacturing sector bouncing back riding with a strong domestic demand along with slowing inflation. For the real estate sector, this is good news as key rate cut by RBI means interest rates can be declined further by banks which directly decreases the burden from the customers.’

After the last RBI policy, the demand in the real estate sector had kick started with banks reducing their lending rates. ‘With a further reduction in repo rate now, the demand graph will see a positive growth in the upcoming months,’ opines Kushagr Ansal, Director, Ansal Housing.

Anticipating rate cut by banks, Praveen Tyagi, CMD, VVIP says, ‘Banks now need to cut their interest rates further so that the demand and investment in the real estate is pushed; and purchasing power of the consumers is enhanced.’

Showing discontent, R.K Arora, Chairman, Supertech Limited says, ‘the announcement to cut the repo and reverse repo rates by 25 basis points by RBI is not sufficient although it is an indication of positive approach of RBI towards investment in the country, and Real Estate Industry welcomes it.’

Elaborating on the same, he says, ‘the Industry was seeking a cut of 1% interest rate to bring back confidence in home buyers and investors, to provide a comfortable EMI level and to kick-start demand. The need of the hour is to reduce the cost of funding in real estate which only would bring in more investment and create more job and the RBI has not addressed this crucial issue.’

Sharing same views, Gaurav Gupta, General Secretary, CREDAI-RNE says, ‘I would say that more interest rate cuts are needed if we want to see people realizing their dreams of buying homes for self-use.”

Effect on Home Loans

Explaining the impact on home loan rates, Rishi Meha, co-founder of deal4loans.com says, ‘At the starting of the year RBI repo rate was at 8%. Now, RBI has reduced the repo rate 3 times in past 5 months. In January, repo rate was cut by 25 base points, In March it was further reduced by 25 base points to 7.5% and now it has been cut to 7.25%. So the repo rate has reduced by 0.75% in this year thus, far. However, home loan interest rates have been changed only once. In April, all major Home loan banks and corporations reduced their lowest home loan interest rates from 10.1% – 9.85%. We believe, due to RBI’s monetary policies bank’s hands are a bit forced to reduce interest rates and home loan interest rates will fall by at least 0.25% in the immediate future.’