RBI hikes repo rate by 40 basis points to bring it to 4.40%

[ecis2016.org] The hike in the repo rate, at which the banking regulator lends funds to banks in India, comes into effect immediately.

The Reserve Bank of India (RBI), on May 4, 2022, increased the repo rate by 40 basis points, bringing it to 4.40% from the earlier 4%. The surprise move by the central bank will increase the cost of borrowing for borrowers in India. In a virtual briefing on May 4, 2022, RBI governor Shaktikanta Das announced an increased of 50 basis points in the cash reserve ratio as well, bringing it to 4.5%.

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The move by the RBI would initiate the start of an interest rate hike cycle.

“The move comes at a time when inflation has been rising to an 18-month high amidst a rebound in domestic economic activity,” said Ramesh Nair, CEO, India & Managing Director, Market Development, Asia at Colliers.

“From a real estate perspective, we don’t expect an immediate increase in home loan rates by commercial banks. This makes it a good time for home buyers, who were on the fence about buying their dream home. With home prices expected to rise in certain segments, it is an opportune time for home buyers to take advantage of the current low home loan rates and largely stable prices before banks reset interest rates,” he added.

Other industry experts are of the opinion this might eventually increase the cost of property acquisition.

“An increase in repo rate has been expected on the back of very high inflation. Rising interest rates along with rising prices of homes on account of high inflation will have a significant negative impact on the real estate sector as both impact affordability significantly,” said Rohit Gera, managing director, Gera Developments.

“The increase in repo rate will likely have an impact on the industry as residential demand has been positively revived in the post pandemic context and needs to be fostered,” said Ramani Sastri, Chairman & MD, Sterling Developers.

Reacting on the RBI move, Niranjan Hiranandani, vice-chairperson-NAREDCO, and MD, Hiranandani Group, said he hoped the hike in repo rates would not impact home loan interest rates, and that the RBI would ensure that inflationary pressure on the individual did not get exacerbated by hiked rates of home loans.

Recall here that some banks have already started to hike their marginal cost of funds-based lending rates, making existing home loans costlier.

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RBI leaves repo rate at 4% for 11th straight time

April 8, 2022: The Reserve Bank of India (RBI), on April 8, 2022, left key policy rates unchanged on expected lines. This means the repo rate is held at 4% and the reverse repo rate at 3.35%. This is the 11th time in a row that the country’s central bank has maintained a status quo on the repo rate. In a unanimous decision to keep the rates unchanged, the six-member rate setting panel of the central bank also retained its accommodative stance.

All economists surveyed by Bloomberg expected the RBI to hold the repo rate at 4% on April 8, while four out of 29 participants expected a hike in the reverse repo rate. Forty-four of 50 participants polled by Reuters between March 29 and April 5, 2022, expected no change in the repo rate on April 8. Thirty-two expected rates to still be unchanged by end-June.

In its first monetary policy announcement of FY 2022-23, the RBI projected inflation to be at 5.7% this fiscal as compared to 4.5% in FY22 and GDP growth for FY23 at 7.2%, compared to its earlier projection of 7.8%.

The repo rate was last reduced in May 2020 and has since been held at a record low of 4%, consequently making housing loans more affordable.

“The RBI’s decision to keep policy rates unchanged will continue to improve sentiments in the real estate sector and signals the government’s focus on driving consumption. This will also provide the required fuel for the growth of the economy, along with the real estate sector,” said Ramani Sastri, chairman and MD, Sterling Developers. For home buyers, this decision will help reinstate confidence and provide continued access to affordable home loans and help foster housing demand, he added.

India’s central bank continues to keeps rates steady at record low levels even as some other central banks in the world are hiking borrowing costs to reduce price pressures.

“(About the RBI decision to hold rates), there may be criticism from a macro-economic perspective but we need to understand the fact that the RBI is playing a complex game of balancing growth with inflationary pressure. This could be elucidated from the fact that despite geopolitical pressure, the RBI had decided to hold its key lending rates steady at record low levels for the 11th straight meeting to support a durable recovery of the economy from the Covid-19 pandemic,” said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

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According to Pritam Chivukula, co-founder and director, Tridhaatu Realty and treasurer, CREDAI MCHI, by keeping the rates unchanged, the RBI has indicated that the domestic consumption is not to be blamed for the inflationary pressure and thus, it has not burdened the common man with higher interest rates. “This will continue to boost the India consumption story and give a boost to GDP,” he added.

RBI maintains status quo on repo rate

February 10, 2022: The Reserve Bank of India (RBI), on February 10, 2022, decided to leave the repo rate unchanged for the 10th consecutive time. The six-member monetary policy committee (MPC) of the RBI, headed by governor Shaktikanta Das, unanimously decided to keep policy rates unchanged at 4% and the reverse repo rate at 3.35%, in view of inflation concerns. The central bank also continues to adopt an accommodative policy stance.

While policy analysts were expecting a status quo on the repo rate, many had earlier prediction an upward tweak on the reverse repo rate, the RBI’s deposit rate.

“Overall, taking into consideration the outlook for inflation and growth, in particular the comfort provided by the improving inflation outlook, the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted, for a durable and broad-based recovery,” RBI governor Shaktikanta Das said, in his address.

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The RBI has lowered the repo rate by a total of 115 basis points (bps) since March 2020, to help Asia’s third-largest economy to deal with the adverse effects of the Coronavirus pandemic. At 4%, the repo rate is currently 250 basis points lower than its level at the start of 2019, when the RBI started the rate-easing cycle.

Since the RBI continues to hold its lending rate steady at a record low, home loan interest rates will continue to hover at record low levels of sub-7% level, enabling better housing affordability in a country where the centre is trying to meet its Housing for All by 2022 target.

“Economic growth needs to be supported through monetary policy and this is the foremost reason that the RBI has continued its accommodative stance, which has invoked a sense of optimism. This works well for all home loan borrowers, as the environment of affordability will continue and will not harden anytime soon,” said Lincoln Bennet Rodrigues, chairman and founder, The Bennet and Bernard Company.

“We also hope that the government looks into specific measures to support developers and continues to boost residential real estate uptake in the upcoming months,” he added.

Most banks in India are currently offering home loans at over 6% annual interest. Coupled with stagnant property prices, this record low interest rate regime has enabled much better housing affordability in India.

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RBI keeps repo rate unchanged at 4% amid Omicron scare

The RBI has decided to leave the repo rate unchanged for the ninth straight time, amid the emergence of the omicron variant of the Coronavirus

December 8, 2021: The six-member RBI monetary policy committee (MPC), on December 8, 2021, decided to leave the repo rate unchanged at 4%. The move by the apex bank is on expected lines, amid rising fears of the spread of the Omicron variant of the Coronavirus.

“We hold strong buffer to manage global spillovers and inflation is broadly aligned with target. We are better prepared to deal with the invisible enemy – COIVD-19. The domestic economic outlook is somewhat clouded by the Omicron variant,” said RBI governor Shaktikanta Das, while announcing the decision of the MPC.

“The decision of the RBI MPC, to keep key policy rates unchanged, is along expected lines. The ongoing growth-inflation trade-off also requires the banking regulator to tread a careful path. Even though economic indicators are reflecting a positive trend, interest rates needed to be kept at the current level, in order to continue to drive growth and boost demand in the real estate sector, which is a key contributor to economic growth in India. If home sales have shown consistent improvement over the past couple of quarters, much of this can be attributed to the record low interest rate regime. Upsetting the current momentum would have been highly detrimental to overall economic recovery,” said Dhruv Agarwala, group CEO, ecis2016.org, Makaan.com and Proptiger.com.

“Given the current eminent Omicron threat, a status quo on repo rates comes as no surprise. These low rates will help maintain the pace of the economic revival. This is also good news for the real estate sector, as low home loan rates, coupled with attractive offers from builders, will keep home buying bullish. Going forward, the focus will be on how long these rates can be sustained and keeping inflation in check,” added Atul Monga, CEO and co-founder, BASIC Home Loan.

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RBI leaves repo rate unchanged at 4%

The RBI, for the eight straight time, has decided to leave the repo rate unchanged as it attempts to support economic recovery in the aftermath of the Coronavirus pandemic

October 8, 2021: The Reserve Bank of India on October 8, 2021, announced it has decided to leave the repo rate and the reverse repo rate unchanged at a time when it is supporting an economy that is still in a nascent stage of recovery. The unanimous decision of the six-member monetary policy committee (MPC) of the RBI was taken after a three-day review meeting headed by of RBI Governor Shaktikanta Das.

“High frequency indicators suggest economic activity has gained momentum (but) core inflation remains sticky. July-September Consumer price Index (CPI) inflation was lower than anticipated… India in a much better place today than at the time of the last MPC meeting,” Das said in his virtually delivered statement.

After being lowered by 115 basis points in early 2020, the repo rate — the rate at which the central bank lends short-term funds to banks — has been held at a record low of 4% since May 2020, when it was last last reduced.

The reverse repo rate, at which RBI borrows money from scheduled banks in India, remains unchanged at 3.35%. The central bank has also continued to maintain an accommodative stance amid mounting inflationary pressures in the economy.

All 30 economists surveyed by Bloomberg and all 60 economists surveyed by Reuters expected the MPC to maintain a status quo on the repo rate in its October policy review.

“We don’t want to rock the bottom when the shore is near, and there is a journey beyond the shore,” the RBI governor said while announcing the MPC decision.

The decision to make no sudden changes in the repo rate by the RBI is a move welcomed by the real estate industry in India that has been pinning its hopes on the ongoing festive season and the 10-year low home loan interest rate regime for firming up of demand and sales activity.

“The RBI’s decision to maintain the repo and reverse repo rates at 4% and 3.35% has come at an opportune time, with the country gearing up for the festive season which often sees a spurt in residential sales. As loans would remain cheap, we expect residential sales to further increase in the coming months,” said Anshuman Magazine, chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE.

“The RBI’s approach to continue with the status quo is on expected lines to enable the growth momentum that seems to have set in during the last couple of months. For home buyers, this decision will help reinstate confidence and further access to affordable home loans. The real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability,” said Ramani Sastri, chairman & MD, Sterling Developers.

Recall here that several banks have in the past two weeks have announced significant reductions in home loan interest rates to boost demand in the festive season. Among the banks that have made these reductions in the rates are Kotak Mahindra Bank, Bank of Baroda, State Bank of India, Punjab National Bank, YES Bank, ICICI Bank, HDFC Bank, LIC Housing Finance, etc.

“The end-user interest has increased mostly due to the all-time low home loan interest rate regime, which has provided the required fuel for the growth of the economy. It is imperative that low mortgage rates continue until the end of the year,” says Sandeep Runwal, MD, Runwal Group.

Uddhav Poddar, MD, Bhumika Group, however, is of the view that a rate cut at this point would have been more appropriate.

“We need to keep the buyers motivated, especially when the festival season is approaching. The requirement was to decrease the interest rates further to rekindle demand, making homes and real estate assets more appealing with low EMIs,” says Poddar.

Real estate developers are also expecting demand to be higher this festive season since an increase in construction costs is likely to fuel price rally further in the times to come. According to Pradeep Aggarwal, founder & chairman, Signature Global Group, customers should take advantage of the current situation because prices may rise in the future owing to higher raw material costs.

RBI holds repo rate steady at 4%

August 6, 2021: Amid widely held expectations that India’s banking regular would continue to maintain a status quo on policy rates, as it attempts to support a wobbling economy to recover from the shock of the Coronavirus pandemic, the Reserve Bank of India (RBI) has decided to leave the repo rate unchanged for the seventh straight time, on August 6, 2021.

With this decision of the six-member Monetary Policy Committee (MPC) of the RBI, the repo rate continues to remain at 4% while the reverse repo rate is at 3.35%.

The RBI’s policy stance continued to be ‘accommodative’, as it watches out for any looming threats to the patchy and nascent recovery that the economy has seen after the second wave of COVID-19.

Earlier, all 61 economists polled by UK news agency Reuters, said they saw no change in the repo rate which had been steady at 4% since May 2020. In July 2021, RBI governor Shaktikant Das had also said that a sudden change to the monetary policy approach could have serious consequences for economic recovery, indicating that the RBI would continue to support economic revival amid looming concerns on inflation.

The RBI leaving the repo rate, at which it lends money to banks in India, comes as good news for home buyers planning to invest in property with the help of housing finance, since home loans are currently at a 15-year low level. Home loan rates will continue to be at record lows, till the time the banking regulator decides to hike the repo rate, which has been at its lowest since April 2001.

Real estate industry on RBI move to hold rates

While the developer community has by and large commended the RBI move to maintain a status quo on rates, some are of the opinion that a cut would have been a more welcome step.

“With economic recovery on a positive note after the second wave of COVID-19, growth needs to be carefully nurtured in the context of a relaxation in economic activities. This can be done by giving a fillip to the economy, by incentivising real estate. For this to happen, we expected a cut in rates, which would have sent positive signals to economic and real estate players. Not only would a cut have bolstered greater demand for homes, as the interest regime would have been lower, there would have been greater infusion of capital in the market, enabling easier supply-demand transactions,” said Ramani Sastri, chairman and MD, Sterling Developers.

“Keeping in mind the current scenario, a slight reduction in the key rates would have been widely celebrated, as low interest rates have been a crucial factor in the revival of demand in the real estate sector. We have already seen early signs of improvement in economic activity, following the easing of some restrictions post the peak of the second wave,” said Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group.

According to Kaushal Agarwal, chairman, The Guardians Real Estate Advisory, the reduction in stamp duty charges in some parts of the country, along with the all-time low housing loan rates have given the much-required fillip to sales activity in the last few quarters. “The expectation among stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels,” he said.

While lauding the RBI move to support the economic growth through the monetary policy and for balancing liquidity in the financial system, while keeping inflation within its target, NAREDCO Maharashtra president Ashok Mohanani said that the developers’ body had urged the state government to reconsider their decision and reinstate the stamp duty reduction till March 2022, to encourage home buyers. “The interest rates will continue to be at a record low for some time (because of the RBI holding the repo rate). However, the banks should pass on the benefits to the customers, which will boost real estate demand,” he added.

According to Shraddha Kedia-Agarwal, director, Transcon Developers, the RBI maintaining status quo on key policy rates was expected, given the inflationary concerns in recent months. “The low-interest rates for the last few months have already given a boost to the real estate sector, up-ticking the demand in the last few quarters and enhancing the confidence of the home buyers. The decision will help to sustain liquidity for some period, as we are already witnessing the derailment of economic momentum due to the COVID-19 pandemic and lockdowns in different parts of the country. It will also help in sustaining economic stability, as well as keeping the real estate sector afloat during these unprecedented times,” she said.

RBI maintains status quo on repo rate as COVID-19 second wave batters the economy

The RBI has decided to keep the repo rate unchanged at 4%, amid rising pressure to offer liquidity support to the economy

June 4, 2021: The Reserve Bank of India (RBI), on June 4, 2021, decided to keep its key policy rates unchanged, amid rising pressure on the banking regulator to offer liquidity support to the economy which is reeling under the impact of the second wave of the Coronavirus pandemic.

With this, the repo rate, at which the RBI lends money to financial institutions in India, stands unchanged at 4% and the reverse repo rate, at which it borrows money from banks, stays at 3.35%. The RBI has slashed the repo rate by 115 basis points (bps) since the virus spread started in India in March 2020. In 2019, it effected a 135-bps reduction in rates through the year.

The move by the six-member monetary policy committee, headed by RBI governor Shaktikanta Das, is on the expected lines. All 51 economists who took part in a Reuters poll, said they expected the RBI to hold rates.

The decision by India’s apex bank comes at a time when the country is reeling under the devastating impact of the second wave of COVID-19 that has killed around 1,70,000 people in April and May 2021 alone.

Recall here that the official caseload since the start of the pandemic in Asia’s third-largest economy currently stands at 28.4 million, the second-highest in the world after the US. The country also has the world’s third-highest death toll from the virus, after the US and Brazil.

Ominously, after suffering its deepest recession on record in 2020, India, the world’s fifth-largest economy, saw its gross domestic product (GDP) growth contracting by 7.3% in FY 2021, official data show.

The move by the banking regulator to keep rates unchanged, also comes in the backdrop of mounting pressure on the government to speed up its inoculation programme, in order to enable states to ease economy-damaging lockdowns.

On July 2 ,2021, the banking regulator also said that economic activity had improved since May-end, with the number of COVID-19 cases declining. In its financial stability report released on that date, the RBI, however, conceded that the second wave had adversely affected the economy.

“In a situation in which economic activity has been disrupted by the pandemic, the financial system can take the lead in creating the conditions for the economy to recover and thrive,” RBI governor Shaktikanta Das said, in the report.

RBI continues to keep repo rate unchanged as India registers record spike in COVID cases

The move by the banking regulator is likely to prompt banks in India to continue with a low interest rates regime

April 7, 2021: The Reserve Bank of India (RBI) on April 7, 2021, decided to keep the repo rate unchanged amid a disconcertingly sharp spike in coronavirus positive cases in the country. On April 6, 2021, India became the second country after the US to register over 100,000 new cases in a day, a development that has prompted several states in India to impose partial lockdown measures.

For the uninitiated, the repo rate is the rate at which the apex bank lends funds to scheduled banks in India.

On widely expected lines, the six-member monetary policy committee (MPC) headed by governor Shaktikant Das unanimously decided to leave the key policy rates unchanged, for the fifth time in a row – the RBI had last revised its policy rate on May 22, 2020. Consequently, the reverse repo rate, at which banks park funds with the banking regulator, also remains unchanged at 3.35%.

Amid elevated inflation levels, the banking regulator has also decided to continue with its accommodative stance for as long as necessary.

Impact on home loans

With effect from April 1, 2021, India’s largest bank State Bank of India has effectuated a 25 basis point upwards tweak in home loan interest rates, a measure that is widely expected to be followed by other banks. However, with the RBI holding rates in the April policy, banks might continue to offer affordable loans to home loan borrowers.

Recall here that most banks are currently offering home loans at sub-7% annual interest.

The developer community is of the view that while the RBI decision to hold rates is “understandable”, a cut in rates could have been a more welcome move.

“Residential demand is reviving and this needs to be fostered. A further cut in the key rates would have given a boost to current demand uptick that we have seen recently… The International Monetary Fund has projected an impressive 12.5% growth rate for India in 2021, stronger than that of China which augurs well for the real estate sector, too. As the economy is gradually opening up and getting back on track to restore the lost momentum, we feel that special attention should be paid to the sector which contributes significantly to the country’s economic growth,” said Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group.

“Keeping in mind the resurgence of Covid infections across the country, a slight reduction in the key rates would have been widely celebrated. With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels,” said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

According to Manoj Gaur, CMD, Gaurs Group and vice-president, CREDAI National (north), while it was understandable that the repo rate remained unchanged, the need for special steps could not be overlooked. “Although the government has taken some steps to support the sector in recent months, such as implementing stress funds and stimulus packages, further reforms are needed to help the sector expand. It would be difficult to sustain the demand in real estate, without adequate government support to the developers. It is time that the government paid attention to the long-standing demand of providing an industry status to the sector,” he said.

RBI leaves repo rate unchanged at 4%

February 5, 2021: The Reserve Bank of India (RBI) left the repo rate, at which it lends money to banks for short periods, unchanged at 4%, while also maintaining its accommodative stance. Consequently, the reverse repo rate also remains unchanged at 3.35%. On widely expected lines, the six-member rate-setting panel of the banking regulator unanimously voted in favour of a status quo, on the key lending rate.

“The RBI MPC unanimously decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year – to revive growth on a durable basis and to mitigate the impact of COVID-19, while ensuring that inflation remains within the target range of the RBI going forward,” RBI governor Shaktikanta Das said, in a post-policy announcement interaction with the media.

The RBI had last revised its policy rate on May 22, 2020, in an off-policy cycle to boost demand, by cutting interest rate to a historic low. It has, in fact, lowered its policy rates by a cumulative 110 basis points since March 2020 with an aim to enable the economy to withstand the shock caused by the Coronavirus pandemic. According to a Reuters poll, the central banks is expected to keep the repo rate, its benchmark lending rate, at 4% through at least 2023.

Most economists expected the monetary policy committee (MPC), headed by RBI governor Shaktikanta Das, to vote in favour of a status quo and continue with its accommodative stance on February 5, 2021. This was the first monetary policy by the RBI, after finance minister Nirmala Sitharaman presented the Union Budget 2021-22 on February 1, 2021.

While announcing the decision of the MPC virtually, the RBI governor also stated that signs of revival were visible in India’s housing sector, with supply and demand, both showing improvement amid an improvement in consumer sentiment. The RBI governor also said that the apex bank has ensured smooth transmission of its rate cuts—the same is reflected in home loan interest rates with most banks currently offering loans at sub-7% level.

“The RBI decision to keep policy rates unchanged is welcome, and signals the government’s focus on fuelling consumption. Given that the economy is well on its path to recovery, the entire focus would now be on how the government plans to boost demand and a lot needs to be done for the sector to improve the pace of growth,” says Surendra Hiranandani, chairman and managing director, House of Hiranandani.

“The economic growth needs to be supported through the monetary policy, and this is the foremost reason that the RBI has continued its accommodative stance. It has focused on balancing liquidity in the financial system while keeping inflation within its target. The interest rates will continue to be at a record low, but banks should pass on the benefits to the customers which will boost real estate demand,” said Ashok Mohanani, president, Naredco Maharashtra.

Some real estate developers have, however, showed disappointment with the RBI stance to maintain rates.

“After a budget that had limited announcements for real estate, the sector was hoping against hope for a further reduction in the repo rates. The reduction would have helped spurred growth in demand for real estate assets that has been severely hit as a result of the pandemic and subsequent lockdowns,” said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

“The RBI announcements have been very much on the expected lines, even though no measures were made for real estate and home buyers particularly in the recently announced Budget. It would have been a relief if some benefit were extended to the sector today, as the experts awaited it. The repo rate remains unchanged at 4%. However, for the industry to revive, we are still expecting some kind of stimulus from the Union government and the RBI in its forthcoming policy meetings,” said Amit Modi, director, ABA Corp, and president-elect CREDAI-western UP.

Commenting on the move, Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group, said that while the decision to keep the repo rate unchanged would ensure that home loan interest rates did not harden anytime soon, the real estate sector still requires further relaxation in policy rates and a cut in interest rates in future.

The next meeting of the MPC is scheduled during April 5 to 7, 2021.

Meanwhile, the non-conventional and conventional support measures offered by the apex bank, to support the Coronavirus-hit economy, have failed to reduce the government’s borrowing costs significantly, says a new study. According to the research authored by Rajeswari Sengupta of the RBI-funded Indira Gandhi Institute of Development Research and Harsh Vardhan of the SP Jain Institute of Management and Research, policy actions by the RBI, made only a modest impact on the ‘term premium’, an indicator of the market’s expectations of future interest rates. The many measures by the RBI, at best, restrained a sharp spike like the one witnessed after the global financial crisis of 2020, they opined.

RBI leaves repo rate unchanged at 4%

This is the third time in a row the central bank has decided to maintain status quo on key policy rates. The move is however not likely to have any adverse impact on housing demand, say experts.

December 4, 2020: Banking regulator Reserve Bank of India (RBI), on December 4, 2020, decided to leave its key rates unchanged amid growing concerns over rising inflation. On expected lines, the six-member monetary policy committee (MPC) of the RBI, headed by governor Shaktikanta Das, left the repo rate, at which the RBI lends money to scheduled banks in India, unchanged at 4%. The reverse repo rate, at which the banking regulator borrowers liquidity from banks, also remained unchanged at 3.35%.

For the uninitiated, reverse repo rate is the rate at which the central bank borrows money from financial institutions in India.

The RBI has also maintained its ‘accommodative’ stance on the policy.

The unanimous decision by the MPC during its bi-monthly policy, came in the backdrop of consumer price-based retail inflation climbing to 7.61% in October, much higher than the RBI’s comfort zone of up to 4%, while growth contracted by 7.5% in the July-September quarter, lower than the apex bank’s forecast of 8.6%. The MPC was of the view that inflation is likely to remain elevated, barring transient relief in the winter months, from prices of perishables.

“The MPC decided to continue with an accommodative stance of the monetary policy as long as necessary, at least till the current financial year and into next year to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within target,” said RBI governor Shaktikanta Das.

The real estate industry has welcomed the RBI’s move amid anticipations that the RBI might go for a rate reduction only in the April-June 2021 quarter now, considering the prevailing economic conditions.

“The RBI’s decision of keeping the repo rate unchanged was on expected lines, owing to the rise in inflation in recent months. After COVID-19, Q2 of FY21 witnessed a strong improvement in consumption and therefore, the RBI maintaining the status quo for the third time in a row is a positive step, in keeping inflation under control,” said Anshuman Magazine, chairman and CEO, CBRE India, South-East Asia, Middle East and Africa.

“The RBI policy was on expected lines. They have prioritised growth over inflation. This is an acknowledgment that inflation drivers seem to be more supply side-led. An accommodative liquidity stance will ensure that access to liquidity will not be a challenge and the ongoing recovery can continue to gather steam. This will help push through government borrowings, in a year when revenues are under pressure,” said Ashish Shanker, deputy MD and head of investment, Motilal Oswal Private Wealth Management.

On December 3, 2020, all 30 economists who participated in a survey by Bloomberg, said the Reserve Bank would continue to maintain status quo on policy rates, amid a spike in consumer prices. Similarly, in a poll of 53 economists conducted by Reuters in November 2020, all participants forecast that the RBI would hold rates amid the prevalent economic conditions.

The RBI is unlikely to announce a rate cut in its next policy meeting scheduled for February 3-5, 2021, a report by Motilal Oswal Institutional Equities has indicated. According to the report, the apex bank will continue to maintain a cautious approach towards further easing, despite retail inflation showing a decline in December 2020.

“It is for the first time since the COVID-19 pandemic began that the CPI inflation has come within the RBI’s target inflation range of 2%-6%. What remains to be seen, is if the downward trajectory in food prices continues during CY 2021. In any case, we do not expect any further monetary easing and the RBI is likely to continue to manage domestic liquidity in a calibrated manner,” it said.

Impact on home loan interest rates

This is the third time in a row that the MPC, after a three-day meet that started on December 2, decided to stay put on rates, after reducing it by 115 basis points this year. The RBI last changed the policy rate on May 22, 2020.

[ecis2016.org] Home loan interest rates and EMI in top 15 banks

Following the last rate cut by the RBI, all major banks in India have reduced their home loan rates to sub-7% level. However, interest rates on home loans may already have hit a bottom, currently hovering at a 15-year-low and the possibility of financial institutions reducing rates further are slim, considering green shoots of growth are already visible in Asia’s third-largest economy, amid a spike in consumption.

Cheapest home loans right now

Lender	Interest rate in %
Union Bank	6.70
Bank of India	6.85
Central Bank of India	6.85
Punjab and Sind Bank	6.90
Canara Bank	6.90
SBI	6.90
PNB	6.80
HDFC Bank	6.90
ICICI Bank	6.90
Bank of Baroda	7.00
Bank of India	6.85

*As on November 30, 2020

According to SBI chairman Dinesh Kumar Khara, lending rates ‘have actually bottomed’ and will remain at these levels for a while, till the economy recovers.

However, sector experts are of the opinion that that record low interest rates and several other measures taken by the RBI in the past, to support the real estate sector, will continue to boost demand in the residential housing segment.

“While the apex bank has kept the repo rates unchanged this time, the year in general has witnessed significant measures adopted by the RBI, such as rationalisation of risk-weightage norms, restructuring of loans based on the projects and linking home loans to LTV, which have encouraged buyers to fulfill their dream of engaging in a high-end investment like real estate. At the same time, although a lot of retail banks are now passing the benefits to the borrowers, we hope the remaining banks are also as swift, in passing on the benefits to customers and continue to adopt a quick disbursal process of funds and loans, keeping real estate as a priority in their lending list,” said Amit Modi, president-elect, CREDAI western UP and director, ABA Corp.

Similar views are expressed by Dhruv Agarwala, group CEO, ecis2016.org, Makaan.com and Proptiger.com. “The RBI’s move to maintain status quo on policy rates was expected, in the face of persistently high retail inflation and an already record-low repo rate. Even as signs of recovery appear in Asia’s third-largest economy, the RBI has said that it would be open to cutting rates if the economy needs support, which is a very positive signal for the future,” said Agarwala, adding that the earlier measures announced by the RBI would continue to help the housing sector.

“Interest rates on home loans are already at sub-7% level, with banks offering further sweeteners such as processing fee waivers among many others. We hope banks will continue to lend vigorously to the real estate sector, the second-largest employment generating sector in India,” he said.

“The monetary policy committee’s decision to keep key rates unchanged was on expected lines and may continue in the near future to support growth, as private consumption has slowly started and several stalled projects have been revived due to the government’s efforts,” pointed out Niranjan Hiranandani, national president, NAREDCO.

“Although the RBI has kept the repo rate unchanged, we feel real estate will benefit from the apex bank’s stance that it will use various instruments at an appropriate time, to ensure ample liquidity is available in the system. The sector has repeatedly been saying that one of the major concerns is liquidity and things will be sorted if the RBI can ensure liquidity for the real estate sector,” said Manoj Gaur, MD, Gaurs Group and chairman of the affordable housing committee of industry body CREDAI.

There is also a pressing need to incentivise real estate sales, said Ankit Kansal, co-founder and MD, 360 Realtors, through policy stimuli such as reduced stamp duty, better income tax discounts in home loans and reduction in the Goods and Services Tax rates. “This can go a long way in giving a further push to the current demand,” he maintained.

Others were also of the opinion that ongoing disruptions might upset the recovery, if not tamed in time. “There is a need to put a check on the spread of the virus and disruptions like the farmers’ protest, etc. These may collectively dampen the festive spirit and the upswing in home buying that we witnessed a few months back,” said Ankush Kaul, president of sales and marketing at Ambience Group.

Signature Global Group founder and chairman Pradeep Aggarwal was of the opinion that if the economy recovers and the job market remains vibrant, buyers looking for affordable homes will expedite the process of owning a property.

“The demand is good the in real estate sector and buyers are more concerned about the low home loan interest rates, which have already been taken care of by the RBI. The status quo stance means that the RBI is confident of the outcome of the steps it took in the last few months. Although real estate is in need of several support measures, the sector is relying heavily on the pent-up demand to remain intact in the months to come and we do not see any reason for it to go down from here,” said Achal Raina, COO, Raheja Developers.

“The real estate industry stands to benefit due to several measures taken by the government, so far. However, there is a lot that needs to be done for the sector to improve its pace of growth. We are looking forward to a bigger rate cut and sector-specific lending provisions, to improve both, the liquidity scenario and consumer spending ability,” said Surendra Hiranandani, CMD, House of Hiranandani.

RBI links home loans to LTV only: How does it affect borrowers?

The move is likely to enable lenders to offer higher credit to home buyers, at a time when loan sanctions have remained muted on risk concerns despite an uptick in home loan-related inquiries

October 19, 2020: In a move that will allow banks to offer more as credit to home loan borrowers in India, the Reserve Bank of India (RBI), on October 9, 2020, made changes in the risk-weightage norms. In its statement on development and regulatory policies, the central bank said it had linked home loans to the loan-to-value (LTV) ratios only, for all new housing loans sanctioned up to March 31, 2022. Before this, the risk weight percentage was decided by two factors: the size of the loan and LTV ratio. The move by the RBI came on a day, when it also decided to keep the repo rate, at which it lends money to commercial banks in India, at 4%.

“In terms of the extant regulations on capital charge for credit risk of individual housing loans by banks, differential risk weights are applicable, based on the size of the loan, as well as the loan-to-value ratio (LTV). Recognising the criticality of the real estate sector in economic recovery, given its role in employment generation and the interlinkages with other industries, it has been decided, as a countercyclical measure, to rationalise the risk weights, by linking them only with LTV ratios, for all new housing loans sanctioned up to March 31, 2022,” the RBI statement read. Housing loans, said the RBI, would have a risk weightage of 35%, in case the LTV is of up to 80%. In case the LTV is over 80%, the risk weightage of the home loan will be 50%, the banking regulator said.

The measure is likely to free up more funds for banks in India, to lend to the real estate sector, the second-biggest employment generating sector after farming. It will enable lenders to offer higher credit to home buyers at a time when loan sanctions have remained muted on risk concerns, despite an uptick in home loan-related inquiries.

Lauding the RBI move, Niranjan Hiranandani, national president of NAREDCO and ASSOCHAM, said: “This step would benefit borrowers of higher value loans. It would ensure that more credit is available to borrowers. This move is a much-appreciated step, recognising the role of the real estate sector in generating employment and economic activity.”

The decision to rationalise the risk weights of new home loans and link them to LTV ratios, is a move in the right direction and will help in providing a fillip to the sector, says Surendra Hiranandani, chairman and managing director, House of Hiranandani.

What does the RBI move on rationalisation of risk weightage imply?

For us to understand what happens after the RBI’s tweaking of the norms, we must understand what risk weightage and LTV are and how they impact home loans.

What is risk weightage in home loan?

Risk weight is that percentage of the approved loan amount, which lenders in India must keep aside, before sanctioning home loans. The RBI raises the risk weight when a certain asset class is seen as riskier, while the opposite is done when an asset is viewed as a safe bet.

The risk weight is then applied to the capital adequacy ratio (CAR) that lenders in India have to maintain. Currently, the CAR is 9% for banks while it is 12% for housing finance companies.

What is the loan-to-value ratio in home loan?

Loan-to-value ratio or LTV is the percentage of the property value that the bank would provide as a home loan. In other words, LTV ratio is the proportion of the property value that a bank can finance. The LTV ratio is arrived at, by dividing the loan amount to the value of the property. Financial institutions use the below-mentioned formula to calculate the LTV ratio:

LTV ratio = Borrowed amount/property value x 100

Under the guidelines laid down by the Reserve bank of India, banks can offer 90% LTV ratio, in case of homes worth less than Rs 30 lakhs. In case of loans between Rs 30 lakhs and Rs 75 lakhs, the LTV ratio can go up to 80%.

Suppose you are buying a house worth Rs 50 lakhs. The bank will agree to offer up to Rs 40 lakhs as loan, because of the 80% LTV mandate. The same bank will offer 90% of the money as loan amount, for a property worth up to 35 lakhs. This would translate into a home loan of Rs 31.50 lakhs.

The final calculation and its outcome

Since the risk weight is 35%, for home loans of up to 80% LTV after the rationalisation, a bank that extends Rs 1 crore, should set aside Rs 3.15 lakhs (Loan amount x capital adequacy ratio x risk weight = 1,00,00,000 x 9% x 35%) as risk weight towards the home loan, at the current rate of 35%. In case the LTV is over 80%, the same bank that extends Rs 1 crore as home loan, should set aside Rs 4.5 lakhs (1,00,00,000 x 9% x 50%) as risk weight at the current rate of 50%. This indicates that when the risk weight is lowered, banks have more money to lend.

RBI leaves repo rate unchanged at 4%

October 9, 2020: The RBI has left the repo rate unchanged in its monetary policy review of October 2020, as it attempts to maintain a balance between boosting the recession-hit economy and curbing inflation

Reserve Bank of India (RBI) governor Shaktikanta Das, on October 9, 2020, said the banking regular has decided to maintain a status quo on the repo rate, at which it lends money to scheduled financial institutions in the country. The RBI continued to maintain an ‘accommodative’ stance, while the reverse repo rate, at which it borrowers funds, was held at 3.35%, as it tried to provide monetary support to the economy, to weather the storm caused by the Coronavirus pandemic.

The RBI stance has been on the expected lines as a Reuters poll of economists conducted in September 2020, showed that the apex bank would keep rates on hold until early 2021, as it attempts to keep inflation in check while also helping the economy come out of its worst recession.

At 6.69% inflation in August 2020, the number remained much-higher than the RBI’s medium-term target range of 2%-6% for the fifth month. To make matters worse, Coronavirus infections spread in India at the fastest pace than anywhere in the world.

The three-day meet that started on October 7, 2020, was the first meeting of the new Monetary Policy Committee (MPC), which was formed after the appointment of three external members, including Jayant Verma, Ashima Goyal and Shashanka Bhide. Earlier scheduled for September 29-October 1, the meeting of the six-member MPC had to be rescheduled to October 7-9, 2020, because of the new appointments.

Impact on home buyers

Even though the RBI has decided to leave repo rates unchanged, it has already brought it down to a record 15-year low, through a cumulative reduction of 250 basis points since February 2019. Taking a cue from the apex banks, lenders in the country have already lowered home loan interest rates to record low levels.

Leading the pack in rate reduction are public sector banks that have brought home loan interest rates to sub-7% level. In September, Union Bank of India started a price war of sorts by bring its home loan interest rate to 6.7% per annum. In a move to attract more borrowers, public lender SBI has also waived off the processing fee for home loan approvals.

“There would be a complete waiver on processing fees on home loans, for home buyers in approved projects. The bank is also providing special concessions of up to 10 bps on the interest rate for the customers, based on their credit score and loan amount. Additionally, home buyers can avail 5 bps interest concession, if they apply for a home loan via YONO,” the bank said in a statement, on September 28, 2020.

While stating that further reduction in key interest rates was not a possibility at this juncture, ASSOCHAM president Niranjan Hiranandani said that the RBI’s decision to rationalise the risk weights on home loans and link them to the loan-to-value ratios, would give a boost to the real estate sector. “This step would ensure that more credit is available to borrowers. This move is a much-appreciated step, recognising the role of the real estate sector in generating employment and economic activity,” he said.

According to Surendra Hiranandani, chairman and managing director, House of Hiranandani, any further cut in policy rates would have definitely pushed the home buyers, who were waiting for the perfect opportunity to invest in their dream home, to firm up their buying decisions.

Amit Modi, director, ABA Corp, and president-elect, CREDAI western UP, maintains that there is scope for further reduction in rates by banks. “Even though the apex bank has kept the rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates for their customers. During the lockdown, the RBI reduced the repo rate and this is yet to be fully passed on to the customers,” he said.

RBI holds repo rate at 4%

August 6, 2020: With an aim to keep the inflation level under control, the Reserve Bank of India (RBI), on August 6, 2020, left key policy rates unchanged while announcing its bi-monthly monetary policy review. Retail inflation in June rose 6.09%, higher than the banking regulator’s 2%-6% target range.

With this, the repo rate remains intact at 4% and the reverse repo rate at 3.35%. The halt in rate cut comes after the apex bank announced a cumulative 115-basis-point reduction, since February this year. Experts were of the opinion that the RBI might go for a further reduction in rates by 25 basis points.

The banking regulator has, however, decided to provide additional liquidity to the tune of Rs 10,000 crores to the National Housing Bank and the NABARD, in a move that will greatly benefit the housing sector. According to Surendra Hiranandani, chairman and managing director, House of Hiranandani, the move will help the NBFCs and housing sector to tide over the liquidity crisis.

***

RBI extends moratorium on home loan EMIs till August, cuts repo rate to 4%

With a view to support economic growth, which is headed towards contraction in the wake of the Coronavirus pandemic, the Reserve Bank of India (RBI), on May 22, 2020, reduced the repo rate to 4%. The 40-basis point cut in the repo rate, at which the RBI lends money to scheduled banks in India, came two months after the banking regulator cut its key lending rate by 75 basis points, to bring it down to 4.40%.

In a major relief for those servicing loans, including home loans, the apex bank has also extended the three-month moratorium by another three months, till August 31, 2020. The RBI had, in March, announced a three-month deferment on long-tenure loans, keeping in mind the Coronavirus spread in the country and its impact on people’s income.

The new RBI announcement follows a series of announcements made by the banking regulator earlier, to support the economy which has taken a beating because of the pandemic and the subsequent lockdown. The government has also announced a Rs 20-lakh-crore stimulus package, to support the economy.

“Even though the lockdown may be lifted by end-May with some restrictions, economic activity in Q2 may remain subdued, due to social distancing measures and the temporary shortage of labour. Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4, as supply lines are gradually restored to normalcy and demand gradually revives,” the RBI said.

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As on May 22, 2020, the number of infections in India had touched over 1.18 lakh.

Addressing a press conference, RBI governor Shaktikanta Das said that India’s gross domestic product (GDP) would see contraction and might well be in negative territory in FY21. Das, while addressing his third press conference since a lockdown was imposed by the government on March 25, to stem the number of infections in the country, said that the RBI was vigilant and ready to do whatever it takes, to tackle the unknown future.

“The RBI’s recent announcements will provide further relief to several Indians, who have been forced to sit at home in the wake of the Novel Coronavirus outbreak. However, banks first need to ensure that there is quick transmission of the announced rate cuts, to the end-consumer. Else, the whole effort will be futile,” said Amit Modi, president-elect, CREDAI, Western-UP and director of ABA Corp. The RBI and the government should make sure that these benefits reach the end-consumer, especially now that there is a 40-basis point cut and there is sufficient liquidity in the system, Modi added.

Meanwhile, in a letter to the RBI governor, the Confederation of Real Estate Developers’ Associations of India (CREDAI) has said that banks are not passing on the rate cut benefit to the borrowers and cash-starved developers, despite the reductions by the banking regulator. “While the RBI has reduced the repo rates by 2.50% since January 2019, the maximum reduction passed on by banks to the borrowers has been between 0.7% and 1.3%, largely from August 2019 till date. In some cases, however, no benefit of the repo rate reduction has been passed on,” CREDAI said in the letter.

RBI announces moratorium on home loan EMIs, cuts rates

The RBI has announced a steep 0.75% cut in the repo rate and a 1% cut in the CRR, as well as a 3-month EMI holiday on all loans including home loans, in the wake of the Coronavirus outbreak

The Reserve Bank of India (RBI), on March 27, 2020, announced a steep 75 basis points cut in the repo rate, bringing it down to 4.4%. The central bank also permitted a three-month moratorium on all loans, including home loans, extended by commercial banks and lending institutions.

“All commercial banks, co-operative banks, all-India financial institutions, and NBFCs (including housing finance companies and micro-finance institutions) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020,” the RBI said. The RBI, while imposing the moratorium on principal and interest payments for three months on term loans, has told banks that non-payment should not be considered as a ‘non-performing asset’.

The announcement was made at an unscheduled Monetary Policy Committee meeting, which was called in the wake of the 21-day nation-wide lockdown announced by prime minister Narendra Modi from March 25, to curb the spread of the Coronavirus. Four of the six members of the MPC voted in favour of the rate cut. “The economic outlook globally is uncertain and obviously negative. Financial stability is the topmost priority of the RBI in this crisis. Banks should do all they can to keep credit flowing,” RBI governor Shaktikanta Das said.

The RBI also slashed the cash reserve ratio (CRR is the amount of cash that commercial banks have to compulsorily park with the RBI) by 100 basis points for a period of one year, to boost liquidity in the system. Das said the move would release Rs 1,37,000 crores of liquidity within banks.

RBI announces incentive for lending to the housing sector

In a move aimed at encouraging lenders to extend loans to the housing, MSME and auto sectors, the RBI has tweaked the cash reserve ratio (CRR) norms

February 7, 2020: In a bid to increase lending to MSME, as well as to auto and home segments, the Reserve Bank of India (RBI), on February 6, 2020, tweaked maintenance of cash reserve ratio (CRR) norms by providing relaxation in calculation of total deposits. The move will encourage lending towards these targeted sectors having multiplier effect by banks, as they will get exemption in CRR over incremental lending. This exemption window is available till July 2020. CRR is the percentage of total deposits that banks mandatorily park with the apex bank. It stands at 4% of a bank’s total deposit.

“It has now been decided that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them, as retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs), 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 CRR,” it said. This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020, it said.

To give boost to the real estate sector, the RBI said, it has been decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector. “This would complement the initiatives taken by the government of India in the real estate sector. The detailed instructions will be issued shortly,” it said.

Post transfer of regulation of housing finance companies (HFCs) from the National Housing Bank (NHB) to the RBI, with effect from August 9, 2019, it was decided that the Reserve Bank will carry out a review of the extant regulatory framework applicable to HFCs and issue revised regulations in due course and till such time, HFCs shall continue to comply with the directions and instructions issued by NHB. “It is proposed to place the draft revised regulations on the Bank’s website by the end of this month, for public comments,” it said.

RBI keeps benchmark interest rate unchanged at 5.15%

After a series of rate cuts, the RBI has maintained a status-quo on the repo rate at 5.15%, for the second time in a row

February 6, 2020: The Reserve Bank of India, for the second straight time in a row, kept its key policy rate unchanged at 5.15 per cent, maintaining its accommodative policy stance for as long as it was necessary to revive growth. The central bank retained the GDP growth at 5 per cent for 2019-20 and pegged it at 6 per cent for the next fiscal. “Economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain the status quo,” the Monetary Policy Committee (MPC) said. While the six-member committee voted unanimously to hold rates, it also said that there is “Policy space available for further action.”

Ramesh Nair CEO & Country Head, JLL India, added that “The central bank has kept the repo rate unchanged at 5.15% and maintained its accommodative stance in the backdrop of relatively high inflation levels and recent fiscal measures. The recently announced budget, which focusses on improving rural incomes and increased spending on infrastructure, is expected to reflect in the next few quarters. The real estate sector showed resilience with the residential sector across the top seven cities recording a growth of 6% y-o-y in the number of units sold in 2019, in spite of muted consumption trends. Moreover, the government’s focus on affordable housing through a slew of measures like the extension of the tax holiday and the benefit under section 80 EEA is expected to have an over-arching impact on the homebuyer sentiment. The real estate sector has been in particular benefitting from rate cuts which were transmitted to some extent through mortgage rates and repo linked loans to end consumers. The repo rate breached the 10-year low mark in October, 2019 at 5.15%. The past trends indicate that further rate cuts would have been ineffective in reviving growth. The revival of economic growth depends on the balance between fiscal and monetary policies which weigh on the consumer sentiment.”

Dr Joseph Thomas, head of research – Emkay Wealth Management, explained that “The RBI has crafted a fine balancing act of reconciling the requirements of growth with stability by keeping the repo rate unchanged at 5.15%. In the recent policy pronouncements, the RBI had very clearly indicated that the requirements of growth should get precedence over stability, against the conditions of sluggish economic growth and the fall in consumption and investment demand. In line with this, the RBI cut the repo rate many times but had left the rates unchanged the last time around too. Inflation has been gradually rising, and the last CPI numbers indicate a strong rise in inflationary pressures but occasioned mostly by the food basket. It was widely expected that the RBI was likely to continue with the pause till there was greater visibility on the inflation front. At this juncture, rate modification is actually not required as the interbank market has a huge surplus of close to Rs 3 lakh crores to support the liquidity requirements of the system, and this alone will ensure that the short-term rates do not move up. The status quo comes as a relief to the short-end of the curve, but the pressures at the long end may persist for a longer time.”

Between February and October 2019, the RBI had reduced repo rate by 135 basis points.

(With inputs from PTI)

RBI keeps repo rate unchanged at 5.15%

After a series of rate cuts, the RBI has maintained a status-quo on the repo rate at 5.15%, at its fifth bi-monthly monetary policy for this fiscal

December 5, 2019: The Reserve Bank of India (RBI), on December 5, 2019, kept the key policy rate unchanged at 5.15% and decided to continue with its accommodative stance, to support the economy. The central bank also revised GDP growth downwards to 5% for 2019-20, from 6.1% projected in its October 2019 policy.

“The Monetary Policy Committee recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture,” the RBI said, in its fifth bi-monthly monetary policy for this fiscal. The panel decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target. All the six members of the MPC voted in favour of a rate pause.

The CPI inflation projection is revised upwards to 5.1%-4.7% for H2 FY20 and 4%-3.8% for H1 FY21. Between February and October 2019, the RBI has reduced the repo rate by 135 basis points.

(With inputs from PTI)

Real estate stress fund can help up to 14,000 flats in Ghaziabad: CREDAI

Around 14,000 home buyers in Ghaziabad can be handed completed flats, if builders in the city get access to the ‘stress fund’ announced by the centre, the Confederation of Real Estate Developers Association of India has said

November 20, 2019: Approximately 30,000 units, which are in various stages of completion, are pending in Ghaziabad, realtors’ apex body Confederation of Real Estate Developers Association of India (CREDAI) said, adding that the average delay in projects here is two to three years. “The Rs 25,000-crore stress fund announced by the government, is going to help around 40 to 50 projects in Ghaziabad, meaning benefit to 12,000 to 14,000 buyers awaiting delivery of their homes,” CREDAI Ghaziabad president, Gaurav Gupta said, on November 19, 2019.

“Our only request, is that the modalities of this fund should be brought out soon, so that the funds could be availed. A delay of six or 12 months in the modalities could mean several other projects, which are not stressed but on the verge of it, would be impacted,” he said. The body also reiterated its demand for an amendment in the law, seeking consent of at least two-thirds of home buyers of any project, for initiating insolvency proceedings against any promoter. It added that the Real Estate Regulation Authority (RERA) should be the first contact point for any buyer, instead of the National Company Law Tribunal (NCLT) or the Consumer Forum.

(With inputs from PTI)

Government’s Rs 25k cr real estate fund may aggravate demand-supply imbalance: India Ratings

The government’s Rs 25,000-crore alternative investment fund may provide relief to home buyers but could worsen the demand-supply imbalance with stalled projects coming on stream, says a report by India Ratings and Research

November 8, 2019: The government of India’s decision to set up a fund of Rs 25,000 crores, to provide priority debt financing for the completion of stalled housing projects, will provide relief to home buyers awaiting possession of their properties, India Ratings and Research said, in a report. The fund would offer an alternate funding channel to net worth-positive projects that have been stalled, because of operational liquidity/credit availability issues and it would benefit some real estate-focused non-banking financial companies and housing finance companies, by reviving viable projects that were classified as non-performing assets (NPAs).

However, with stalled projects coming on stream, the demand-supply imbalance is likely to worsen and if overall housing demand does not witness a recovery, pricing pressure in the sector is likely to be exacerbated. Furthermore, market consolidation in favour of Grade I players might also become protracted, as supply from non-Grade I players comes on stream. Under India Ratings and Research (Fitch Group) classification, Grade-I builders are those who have a reputed brand name, significant market share, strong execution capabilities, robust balance sheet with high financial flexibility and are regulatory compliant.

Change in eligibility criteria to help distressed projects

The new guidelines have widened the scope for projects that could avail funding under this special window. It will now include housing units up to a ticket size of Rs 2 crores (Mumbai – Rs 2 crores; other top seven cities – Rs 1.5 crores; and remaining cities – Rs 1 crore) and projects that have been classified as NPA or are under National Company Law Tribunal (NCLT) proceedings, subject to them being net worth positive (cash flows higher than the project cost). Unlike the earlier announcement in September 2019, wherein the funding was restricted to non-NPA and non-NCLT projects only, the new measure would aid projects that are fundamentally viable but have been struggling due to slow sales and/or lack of credit availability.

[ecis2016.org] Government mulling special window for NBFCs under insolvency law

Price recovery and market consolidation to be delayed

The residential real estate sector has already been facing high inventory, with quarter to sale (QTS) inventory of 9-24 quarters in the top six cities, as of June 2019, compared to QTS of 16-23 quarters as of end CY16 (Source: Liases Foras). Due to funding constraints and regulatory changes, supply addition has come down on an absolute basis since 2016, while demand/absorption has remained broadly stable, thereby, restoring some supply-demand balance over the last two years.

While the announced scheme will result in supply of habitable inventory, it would not have any direct impact on the demand. This may distort the ongoing consolidation/ correction in the real estate market and result in further pricing pressure. A fund of this size would have the ability to bring about 300 million sq ft on stream, over the next two to three years, assuming last mile funding of 30%, for projects with an average construction cost of Rs 2,500 per sq ft. Furthermore, this supply will primarily be witnessed in the Mumbai Metropolitan Region (MMR) and National Capital Region ((NCR) markets, which have a fairly high number of stalled projects. At end-Q1FY20, the top six markets had sold 69 million sq ft (MMR and NCR jointly accounted for about 46%) and had about 10 billion sq ff of unsold inventory (MMR and NCR together accounted for about 54%).

(With inputs from Housing News Desk)

Government announces Rs 25k cr fund for stalled housing projects which are not under litigation in higher courts

The government has approved a Rs 25,000-crore fund, to help complete over 1,600 stalled housing projects, including ones that have been declared NPAs or admitted for insolvency proceedings, in a bid to boost growth by steering consumption in the real estate and associated sectors

November 8, 2019: In order to restore normalcy in India’s real estate sector, the second-biggest employment-generating sector after agriculture, the government on November 6, 2019, said it would establish a Rs 25,000-crore alternative investment fund (AIF) to help complete stuck projects. According to government estimates, the fund will help as many as 1,600 stuck projects consisting of 4.58 lakh housing units across the country.

Following the announcement, the government has also advised home buyers to approach lenders for additional borrowing or revival of their loans. “Home buyers are advised to reach out to their respective lending institutions to seek necessary guidance for additional borrowing or revival of their existing home loans, within the existing legal and regulatory framework and standard board-approved policies of the lending institutions,” said the frequently asked questions (FAQs) issued by the Finance Ministry. The FAQs also said the proposed AIF will not invest in projects that are facing litigation in the high courts or the Supreme Court. The Finance Ministry also said the maximum funding will be Rs 400 crores, for any single project that will be seeking assistance from the ‘special window’ or the alternative investment fund (AIF).

Finance minister Nirmala Sitharaman said the Alternative Investment Fund (AIF) will have Rs 10,000 crores coming from the government and the remaining being provided by state insurer LIC and the country’s largest lender, SBI. The minister also said several sovereign funds have shown interest and may join the scheme at a later stage. The fund, to be set up as Category-II AIF registered with SEBI, will be managed by SBICAP Ventures Limited.

The AIF, which was first announced by Sitharaman on September 14, 2019, will act as a ‘special window’, to provide loans to over 1,600 incomplete affordable and middle to lower-income housing projects. Sitharaman said the scheme, approved by the union cabinet headed by prime minister Narendra Modi, is a modified version of the September 14, 2019, plan.

“Government’s intention is completion of housing projects,” the minister said after the cabinet meeting. She further said meetings were held with home buyers, associations, banks and the RBI during the past few months and it was decided to modify the scheme, by including even those projects which have been declared non-performing assets (NPAs) by lenders and also those which have been dragged to the NCLT for insolvency proceedings. She, however, said only RERA-registered projects with positive networth will be provided funds. The AIF funds will be released in stages through an escrow account and will be contingent upon completion of the approved phase, she said, adding the size of the fund may be increased with the participation of sovereign and pension funds. She also said that the Reserve Bank of India would be soon coming out with a clarificatory note on the scheme.

What constitues affordable and mid-income housing?

Affordable and mid-income housing projects are those wherein dwelling units do not exceed 200 sq metre carpet area and are priced up to Rs 2 crores in the Mumbai Metropolitan Region, up to Rs 1.5 crores in the National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad, and up to Rs 1 crore in the rest of the country.

Meanwhile, sources said about Rs 3.5 lakh crores had been invested in the over 1,600 stalled projects and investment of Rs 55,000 crores to Rs 80,000 crores would be needed to complete them.

Developers welcome stetting up of the AIF

Real estate developers’ association CREDAI has welcomed the setting up of the AIF. “It’s a welcome change from the initial announcement of September 14, 2019. Now the only criteria for eligibility is networth positive projects. This will ensure that the fund is actually deployed, to complete incomplete projects which are even NPA or also in the NCLT. We are certain that a majority of stuck home buyers will benefit from the announcement,” CREDAI chairman Jaxay Shah said.

Niranjan Hiranandani, national president of NAREDCO and MD, Hiranandani Group, added “The vexed problem of delayed and stalled real estate projects appears to have found a solution, with the finance minister announcing the cabinet’s approval of the scheme to provide last-mile funding for such projects, which she had proposed earlier. This will be a win-win for home buyers and real estate developers, as it will help alleviate financial stress faced by home buyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes. Positive impact of the move includes generation of employment, the revival of demand for cement, iron and steel industries and relieving stress in other major sectors of the economy.”

According to Shishir Baijal, chairman and managing director, Knight Frank, the inclusion of developments under NPAs and NCLT, albeit that these are net positive projects, into the special window funding is a welcome decision. “The extension of this benefit to mid-income, beyond the affordable housing segment, is a critical step forward. This will help create greater momentum in inventory movement. Many projects which are near completion but have not been able to garner last-mile funds, will benefit from this move,” he said.

Anshuman Magazine, chairman and CEO – India, south-east Asia, middle-east and Africa at CBRE said, “This move will go a long way in building confidence into the real estate sector, not only from the end-user’s perspective but also from an investor’s perspective.”

Parth Mehta, managing director of Paradigm Realty, added: “The recent announcement by the finance minister, will help projects which are at a good construction stage but have got stuck due to lack of project finance or adequate sales. It will help the buyers in the ticket sizes of Rs 1 crore or less, which is typically a first home for salaried families in metro cities.”

The government announcement is part of the many recent decisions it has taken to revive the economy after growth hit a six-year low of five per cent in the April-June quarter of the current fiscal. While the centre has increased the tax deduction limit on housing loan interest in the annual budget to Rs 3.50 lakhs for affordable units, the Reserve Bank of India has also brought down the repo rate to 5.15% through consecutive reductions. Both these moves are targeted to push housing sales in the country, which has continuously been plunging.

According to a quarterly report by PropTiger.com, home sales in India’s nine key residential markets declined 25% in the July-September quarter primarily because of project delay-induced low buyer sentiment. Data also show developers in these markets are sitting on unsold inventory consisting of nearly eight lakh units.

(With inputs from PTI)

RBI cuts benchmark lending rate by 0.25%, to 5.15%

The RBI, on October 4, 2019, cut interest rates for the fifth time in a row, reducing the repo rate by 0.25%, to bring it to 5.15%

October 4, 2019: The Reserve Bank of India (RBI), on October 4, 2019, cut the key interest rate by 0.25% (25 basis points), to boost the economy from a six-year low, saying that the reduction was necessary to revive growth. Consequently, the repo rate, at which it lends to the system, has been brought down to 5.15%, to help reduce borrowing costs for home and auto loans, which are now directly linked to this benchmark.

This is the fifth straight cut in rates by the Reserve Bank in its key rates in as much policy reviews in 2019 and takes the total quantum of reductions to 1.35%. All members of the rate-setting Monetary Policy Committee (MPC) voted for the latest rate cut. However, the central bank expressed concern that the monetary transmission has been staggered and incomplete.

The six-member monetary policy committee (MPC) also maintained an ‘accommodative policy stance with a view to reviving growth’. With the first quarter GDP growth plunging to 5%, the RBI cut its estimate of economic growth in the current fiscal to 6.1% from its earlier estimate of 6.9%.

(With inputs from PTI)

Banks with exposure to poorly-run NBFCs will have to take larger haircuts: RBI governor

Banks will have to take more haircuts, while resolving the stressed loans extended to non-banking lenders who are found wanting on the corporate governance front, RBI governor Shaktikanta Das has warned

September 20, 2019: In resolving the crisis at NBFCs that have major governance issues, banks need to take a larger haircut, Reserve Bank of India (RBI) governor Shaktikanta Das said, on September 19, 2019. “These are business failures but there is also an element of administrative or governance lapses in them,” Das said. Das’ comment on non-banking finance companies (NBFCs) comes at a time, when banks are grappling with the resolution of stressed cases like the over Rs 50,000-crore dues from mortgage financier DHFL.

Das further said banks will have to take a ‘balanced call’, while dealing with the issues of stressed loans. He, however, made it clear that the RBI will not immediately resort to using recent amendments in the statutes, which empower it to take control of an NBFC, as the first priority would be to find ‘market-based’ solutions for the same. Market-based solutions can involve promoters cutting stake, new promoters coming in or securitisation of the assets to raise resources to come out of liquidity issues. He said the RBI continues to monitor the 50 largest NBFCs on a continuing basis and it will be using the powers of the amended statutes, only if any need arises.

The going has been tough for NBFCs over the last one year, since infra-focused sectoral major IL&FS started defaulting on its loans, triggering a liquidity crisis among NBFCs. NBFCs typically depend on short-term borrowing to finance long-term assets like home loans, which has led to the troubles in the sector, the RBI had said.

(With inputs from PTI)

FM Announces Rs 20,000 Crores Fund To Finish Stuck Projects, Relaxes ECB Guidelines

FM Sitharaman has announced last mile funding for non-NCLT and non-NPA affordable and middle-income projects

September 14, 2019: The Finance Minister Nirmala Sitharaman on September 14, 2019 has announced a slew of measures for the real estate sector to fund stuck housing projects and ease borrowing norms for lenders financing affordable home buyers. These measures include-

Relaxation of ECB Guidelines under Affordable Housing: The external commercial borrowing (ECB) guidelines will be relaxed to facilitate the financing of home buyers who are eligible under PMAY, in consultation with the RBI. This will be in addition to the existing norms for ECB for affordable housing.

House Building Advance: The interest rate on House Building Advance will be lowered and linked with the 10-year G Sec Yields (7.7-7.75%). This move is expected to encourage more government employees to buy new houses

Special funding for affordable and middle-income housing: A special window for providing last-mile funding for non-NPA and non-NCLT affordable and middle-income category projects which are Net Worth positive will be set up. The government of India will contribute Rs 10,000 crore and the same amount will be contributed by outside investors. The fund will be managed by professionals from the housing and banking sectors. The objective is to focus on the construction of unfinished units.

“Projects that are 60% complete shall get last mile funding through special window. We will not interfere with the projects that are under NCLT. The tribunal will decide what has to be done. About 3.5 lakh dwelling units to benefit from this,” says Finance Minister Nirmala Sitharaman.

(With inputs from PTI)

Banks to reduce home loan interest rates, says FM while announcing economic stimulus measures

The government, on August 23, 2019, announced a slew of measures, including the banks’ decision to cut interest rates, a move that would lead to lower EMIs for home, auto and other loans; upfront infusion of Rs 70,000 crores to public sector banks, in efforts to boost economic growth from a five-year low; the rollback of enhanced super-rich tax on foreign and domestic equity investors, exemption of start-ups from ‘angel tax’, a package to address distress in the auto sector.

Finance minister Nirmala Sitharaman, who had been flooded with demands from different sectors after her maiden budget in 2019, promised to continue the reforms and announce more measures. She announced an immediate infusion of Rs 70,000 crores into banks, to boost their liquidity and lending capacity of banks by Rs 5 lakh crores, while housing finance companies would get up to Rs 30,000 crores, with a view to reviving the real estate sector.

“Banks have again decided to launch repo rate or external benchmarking-linked loan products. This will, therefore, result in reduced EMI for housing loans, vehicle and other retail loans by directly linking repo rate to the interest rates, which means the moment reduction happens, it will directly benefit end customers,” Sitharaman said. She said the move would also lead to cheaper working capital loans for the industry.

SBI chairman Rajnish Kumar said bank recapitalisation at one go, would provide a big impetus to credit growth. The lender has already started benchmarking its loans to repo and now other banks are likely to follow suit, he added. Other measures announced to boost the economy, include setting up of an entity for credit enhancement for infrastructure and housing projects, a task force to finalise the pipeline of infrastructure projects and simplification of Know Your Client (KYC) procedure to improve market access for foreign investors.

“Linking of repo rates directly to home loan rates, will aid the home buyers to avail of faster and cheaper home loans. This rejig of spending model by government, is a clear intent to stoke demand and ease bank credit, which had taken a hit across the industry,” said Niranjan Hiranandani, national president, NAREDCO.

The infusion of Rs 70,000 crores in PSBs, along with various initiatives announced by the FM, will boost market sentiments and revive many sectors, particularly the automobile, MSME, consumer and retail sectors. Housing will get a big boost, with Rs 30,000-crore funds, including Rs 10,000 crores already given to the NHB, for refinance facility to HFCs. With measures to resolve home buyers’ and developers’ problems expected, the economy is expected to come back to normalcy in 3-4 months,” said Deo Shankar Tripathi, MD and CEO of Aadhar Housing Finance.

(With inputs from PTI)

UCO Bank, Allahabad Bank cut MCLR

Following the repo rate cut by the RBI, state-run lenders Allahabad Bank and UCO Bank have slashed their marginal cost of funds-based lending rate (MCLR) by 15 to 20 basis points, across all tenors

August 12, 2019: Days after the 35 bps repo rate cut by the Reserve Bank of India (RBI), state-run lenders Allahabad Bank and UCO Bank, on August 9, 2019, slashed their marginal cost of funds-based lending rate (MCLR) across all tenors. Allahabad Bank said it has reduced its MCLR by 15 to 20 basis points (bps) for different tenors, effective from August 14, 2019, while another public sector lender UCO Bank announced that it has cut the same by 15 bps, across all tenors.

“The benchmark one-year MCLR has been reduced by 15 bps to 8.5 per cent, as against 8.65 per cent earlier,” UCO Bank said in a statement. The one-year MCLR is the rate based on which the retail loans such as home, car and personal advances are linked, the lender said. UCO Bank is planning to link the rate of interest with the RBI’s repo rates, to pass on the benefit to customers.

[ecis2016.org] SBI lowers lending rates by 0.15%, effective August 10, 2019

Allahabad Bank also said it has decided to reduce the rate of interest on retail term deposits by 10 bps, across all terms over one year. Allahabad Bank’s MD and CEO SS Mallikarjuna Rao, said the bank will be exploring the development of products of both, assets and liabilities, linked with an external benchmark, to transmit the benefits of rate cut to its customers, shortly.

(With inputs from PTI)

RBI slashes interest rate by 0.35%, making it the fourth cut in a row

The RBI, on August 7, 2019, cut interest rates for the fourth time in a row, reducing the repo rate by 0.35%, to bring it to 5.40%

August 7, 2019: The Reserve Bank of India (RBI), on August 7, 2019, cut the key interest rate for the fourth consecutive time, as it reduced the repo rate by 35 basis points (0.35%) to 5.40%, to boost the slowing economy. The six-member monetary policy committee (MPC) also maintained the accommodative stance on the monetary policy. In the earlier three policies, it reduced the repo rate by 25 basis points, each time.

[ecis2016.org] SBI lowers lending rates by 0.15%, effective August 10, 2019

The fourth consecutive rate cut, is expected to lower equated monthly instalments (EMIs) for home and auto buyers and borrowing costs for corporates. The 35 basis points (bps) cut in repo is unusual, as the RBI has been changing the interest rate by 25 or 50 bps, in the past. When asked why the RBI opted for a 35-basis point rate cut, RBI governor Shaktikanta Das said it is not unprecedented and added that a 25-basis point reduction was inadequate, while 50 bps was excessive. So, the MPC took a balanced callm he said.

Noting that inflation was currently projected to remain within the target, over a 12-month horizon, the MPC said since the last (June 2019) policy, domestic economic activity continued to be weak, with the global slowdown and escalating trade tensions posed downside risks. It said that even as the past rate cuts were being gradually transmitted to the real economy, the benign inflation outlook provided headroom for policy action, to close the negative output gap.

The RBI also revised real GDP growth for 2019-20 downwards, to 6.9% from 7% in the June policy. CPI inflation is projected at 3.1% for the second quarter of FY20 and 3.5%-3.7% for second half of FY20, with risks evenly balanced, it said.

(With inputs from PTI)

Bankers agree to take steps, to pass on RBI’s rate cuts

The Finance Ministry has said that banks have agreed to take steps to review lending rates, as they have not ‘commensurately’ transmitted the benefits of reductions in the policy rate by the RBI, to borrowers

August 6, 2019: Since December 2018, the monetary policy has been eased substantially by the Reserve Bank of India (RBI), with policy rates being cut by 75 basis points (bps) and the policy outlook being changed to ‘accommodative’. “Banks need to commensurately transmit the rate cut benefits in lending. In the meeting, banks agreed to take steps as per RBI guidelines, to review their lending rates,” said an official release, on August 5, 2019. The release was issued after a meeting between finance minister Nirmala Sitharaman and heads of public sector banks (PSBs), as well as private lenders, including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and CitiBank.

Financial services secretary Rajiv Kumar said a range of issues connecting to credit growth, micro, small and medium enterprises (MSMEs), automobiles, timely transmission of rate cuts, digitisation and service tax-related issues, were discussed at length. “The idea is to take stock of everything and spur credit growth, especially in the automobile sector, in the agriculture sector, in the MSMEs and also look at the ‘co-origination’ with the NBFCs and HFCs, where the banks have the credit availability, so that they can join hands together and lending reach to the last mile,” Kumar said.

[ecis2016.org] Are home buyers really getting the benefit of rate cuts by the RBI?

Touching upon the issue of home buyers discussed in the meeting, the minister said the Supreme Court has already come out with its verdict in the case of one of the big realty firms. However, in case of another, the ministry had consultations with various stakeholders. “On another (developer), we have had a group of ministers meeting with all the respective authorities, whether it was the Noida Authority, or the Yamuna Expressway Authority, together with representatives of Uttar Pradesh, with the Union Minister of Urban Development Hardeep Singh Puri and the concerned secretaries – banking, revenue and company affairs,” she said. Sitharaman said there have been extensive meetings and the government hopes to move forward in that direction.

On funding to MSME and non-banking financial company (NBFC) sectors, she said the meeting discussed about ways to improve lending to these businesses. The minister said there is a complex matrix of governance-related, solvency-related and liquidity-related issues. RBI deputy governor NS Vishwanathan, who also attended the meeting, said the banking system has adequate and durable liquidity currently.

Sitharaman talked about issues related to the increase in public shareholding in listed companies from 25 per cent to 30 per cent as well as levy of surcharge on super riches. She said market regulator SEBI has already started consultations with various stakeholders about the increase in public shareholding to 30% in listed entities. About levy of surcharge on foreign portfolio investors (FPIs) as part of tax on super riches announced in the Budget 2019-20, she said, “I did mention that there are FPIs who are going to tell me something about it and I am quite open to hearing out what they want to tell me. And towards that, I have not just left it at that.” She said Department of Economic Affairs (DEA) Secretary Atanu Chakraborty has clearly culled out time to meet with the FPIs so that the ministry can have their views.

(With inputs from PTI)

RBI cuts interest rates for the third time this year, to boost growth

Amid concerns over a slowing economy, the Reserve Bank of India has cut interest rates for the third time this year, lowering the repo rate by 0.25%, to 5.75%

June 6, 2019: Slashing the benchmark lending rates for the third time this year, the Reserve Bank of India (RBI) cut its repo rate by 0.25% on June 6, 2019 and said its future monetary policy stance will be more accommodative. The repo rate, at which the central bank lends to the system, will come down to 5.75% after the cut.

[ecis2016.org] RBI to create specialised cadre for regulation of banks and NBFCs

Amid concerns of a slowdown in the economy, the central bank lowered its gross domestic product (GDP) forecast to 7% for the current fiscal from 7.2% projected earlier. While marginally increasing its inflation projection to 3%-3.1% for the first half of the fiscal year 2019-20, which is within the comfort range of 2%-6% set by the government, the RBI cut the GDP growth targets sharply to 7% for FY20, on the back of a weak global scenario and dip in private consumption.

“The MPC (monetary policy committee) notes that growth impulses have weakened significantly. A sharp slowdown in investment activity, along with a continuing moderation in private consumption growth, is a matter of concern,” read the policy resolution.

(With inputs from PTI)

Source: https://ecis2016.org/.
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Source: https://ecis2016.org
Category: Lifestyle

Debora BertiMay 9, 2022

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