RBI cuts repo rate: Real estate developers hail Shaktikanta Das, but will banks pass on this benefit to loan takers?

RBI has cut the Repo Rate by 0.25 per cent to 6 per cent. The real estate developers have hailed Governor Shaktikanta Das for this pro-growth move as the decision would lower the EMI for home buyers and pave the way for a smoother credit line for developers. However, they had their fingers crossed as the lowering of interest rate lies with the lending institutions like public and private sector banks, NBFCs, housing finance companies etc. They said last time when the RBI cut down Repo Rate from 6.5 per cent to 6.25 per cent in February, the banks didn't lower the home loan interest rates that almost nullified the RBI objective till the central government intervened into the matter by reprimanding the banks for that.

Speaking on the RBI decision Anuj Puri, Chairman - ANAROCK Property Consultants told Zee Business, "As hoped for, the RBI has reduced the repo rate by another 25 basis points. Back-to-back repo rate cuts by the RBI are indeed the perfect start to a new financial year, resulting in overall reduction of 50 basis points since February 2019. The Repo Rate now stands at 6 per cent - returning to the same level as in April 2018. This will augur well for the Indian real estate sector and keep the momentum going in the coming year."

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इस बार दरों पर #RBI का क्या रुख होगा और कहां होगा पॉलिसी का फोकस? जानने के लिए देखिए RBI पॉलिसी पर बैंकर्स पोल।@poojat_0211 @AnilSinghviZEE #MonetaryPolicy #CreditPolicy pic.twitter.com/GIuz6rIdW8

— Zee Business (@ZeeBusiness) April 3, 2019

However, Anuj Puri also warned that the job is not done till banks lower the interest rates saying, "The RBI has done its part by slashing the repo rates. The onus is now on the banks to concurrently reduce home loan rates further, thereby encouraging more fence-sitters to take purchase decisions and giving another boost to the real estate sector."

Standing in sync with ANAROCK views, Farshid Cooper, Managing Director, Spenta Corporation said, "RBI decreasing the repo rate by 25 basis points is a boon to the sector. This might quicken the pace on both private consumption and private capital expenditure. Furthermore, it is imperative for banks to reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. The rate reduction will also provide the much-needed stimulus to build upon the various initiatives announced by the Government about reviving the demand in the realty sector in an affordable manner."

Ravindra Sudhalkar ED & CEO of Reliance Home Finance said, "After government’s proactive steps to boost real estate markets by relaxing GST rates and offering tax sops in the interim budget, the rate cut will provide much-needed impetus to real estate sector, which is reeling under liquidity pressures. Setting up the committee for assessing housing finance securitisation market is a welcome move which will help further easing liquidity in the system.” 

To solve this problem of banks not passing on the RBI rate cut benefits to the customers, former RBI Governor Urjit Patel had proposed a new regime in which the floating loan rates for small borrowers would be linked to an external benchmark. In this regime, four options were given to the banks to choose an external benchmark, one of them were the RBI Repo Rate. In his last monetary policy held in December last year, Patel had categorically mandated that this new system of external benchmark-linked lending rates will come into effect from April 1, 2019. However, the final guidelines are yet to be issued.