RBI policy Quote | Mr. Anurag Mathur, Chief Executive Officer, Savills India

In line with expectations, a status quo on the benchmark lending rates has been announced by the RBI. Despite the Union Budget 2020-21 embarking upon a policy aimed at boosting consumption, the recent increase in consumer price inflation- it breached the upper tolerance limit of RBI in December 2019, has not provided the apex regulator the room to lower interest rates. After a cumulative reduction in repo rates by 135 bps through 2019, the MPC in its February 2020 meeting, has chosen to maintain a status quo and continue with an accommodative stance. Repo rates being unchanged for the second consecutive time reflects the reserve bank’s concern over the alarming rate of rise in food inflation which rose to double digits in December 2019. This also conveys the MPC’s uneasiness in predicting the trajectory of crude oil prices, fear of corona virus affecting the global economy and a host of domestic factors fanning the inflationary upward trend.

 In line with treatment accorded to project loans for non-infrastructure sector, the date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, can now be extended by another one year without downgrading the asset classification. This is likely to bring some relief to the real estate sector which is grappling with liquidity crunch and slow sales. Having said that, we believe that the benefits of last year’s 135 bps repo rate reduction should fully trickle down to the end users (a minimal amount was passed on to the end borrowers by lenders). The residential segment needs to show a more up-beat performance, for the government to successfully achieve a target of 10% nominal GDP growth rate in fiscal 2021.

The monetary policy also mentioned that banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans including housing loans over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020 from their net demand and time liabilities (NDTL) for maintenance of cash reserve ratio (CRR). This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020. This is also expected to aid the flow of bank credit to the housing sector and support residential sales.