Latest Property News on 'Banking and Finance'

Further Fall in Rates Expected

The unpredictable rate movements, the Reserve Bank of India’s (RBI) moves and mixed response from the lenders has put borrowers in some confusion. The inflation monster which had pushed prices to unimaginable highs has finally been tamed. From as high as 12.91 percent this year, the inflation rate has almost come down to half of that. Does this mean borrowers can expect banks to reduce their home loan rates, if this trend persists? What is inflation? Inflation is an increase in prices and/or decline in purchasing power. An increase in the amount of currency in circulation results in a relatively sharp and sudden fall in its value, and rise in prices. It can also be defined as a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. Inflation is caused more by global rather than by domestic factors today.

The year 2008 has seen extreme turbulence in all quarters. The stock markets tumbled down, wiping away tons of investor wealth. The inflation numbers touched new peaks and crude oil prices shot up. Prices of essential commodities and food rose sharply. And so did home loan rates, impacting borrowers adversely, especially those who did not see a proportionate increase in their pay purses. High inflation rates are dealt with through a combination of market forces and government regulations. A host of RBI measures ensued. The RBI continuously monitors the monetary and liquidity conditions to maintain domestic macroeconomic and financial stability in the context of the global financial crisis . It hiked the repo rate and the cash reserve ratio (CRR), and then resorted to slashing them again. The repo rate is the rate at which banks borrow money from the RBI. A reduction in the repo rate will help banks get money at a cheaper rate. When the repo rate is increased borrowing from the RBI becomes more expensive. The CRR is the proportion of reserves commercial banks must keep with the RBI. It has been slashed to 5.5 from nine percent . With the inflation rate declining, the RBI is expected to announce a further reduction in the repo and reverse repo rates. Read More »

Banks and Financial Institutions can be More Flexible in their Dealings

Banks and financial institutions are seeking more flexibility in dealing with commercial and industrial loan accounts, which are seeing pressure due to cash flows and repayment. Lenders take up loan recast proposals through the corporate debt restructuring (CDR) mechanism. At the last meeting of the core group of CDR, earlier this week, bankers said that real estate cases could soon come to the forum as companies were facing problems.

A recent decision by the Reserve Bank of India allowing cases related to the services sector to CDR has opened the doors for many companies to approach banks for restructuring of loans. “There is need for clarity on how to go about restructuring these cases since service sector companies did not come to CDR earlier,” a banker said. In addition, the forum is trying to work out a mechanism that provides flexibility in decision making at all levels. Read More »

Property Market turns Buyer friendly

The year 2009 will lift the gloom in the real estate market as the property market turns buyer friendly with the cuts in property rates and home loan rates. Developers for their part would benefit as they will focus on creating volumes at affordable price points.

The government move to boost home loans will definitely rejuvenate the low-segment borrowers borrowing loans upto Rs 20 lakh. Public sector banks have made their loans cheaper and private banks and HFCs are expected to follow suit. “The important thing now is for the supply side to catch up with the increasing demand in this segment,” say experts. Read More »

India’s Stimulus Plan-II will aid IT sector

The government is set to extend the blanket tax exemption provided to software companies in order to boost the IT industry, which has become one of the biggest casualties of the global financial crisis. The Software Technology Parks of India (STPI) scheme that grants a ten-year income-tax holiday under Section 10A of the Income-Tax Act is expected to continue beyond its March 2010 deadline in a move that should help smaller players.

India’s top IT companies do not need this support as they have already invested in special economic zones, which offer liberal tax breaks. Extending the STPI scheme will help second-rung companies stay afloat as they cannot afford the fresh capital investment required to migrate to SEZs. Read More »

Accept the Risks Linked with Real Estate: RBI to Banks

The Reserve Bank of India on Wednesday said that it is imperative for banks to manage balance sheet risks associated with real estate exposure. This becomes important “particularly in the current scenario of slowdown in the economy with its expected ramifications on real estate prices, given the historically positive correlation between economic downturn and its adverse impact on real estate prices,” the apex bank said. With the major portion of real estate exposure consisting of mortgage-related assets, which are long-term in nature and have dynamic cash flow characteristics, they become “risky ventures”, the RBI said in its Report on Trend and Progress of Banking in India, 2007-08, released here.

The recent global financial turmoil, caused by the mortgage market crisis in the US, has brought into focus “the dangerous inter-dependence between real estate cycles, bank crisis and the ultimate threat to financial stability”, it said. Anecdotal evidence suggests real estate prices rose 2-4 times during the past 3-4-years in different parts of the country, the RBI said. Real estate prices affect the economy primarily in two ways, it said. First, when prices are rising, the expectation of further appreciation is factored into the prices and this expectation stimulates demand for homes, which, in turn, spurs construction activity and aggregate demand. Read More »

RBI Announces Rate Cut in Short-Term Interest Rates

The Reserve Bank of India on Saturday announced sizable cuts in its key short-term interest rates, sending a signal to banks to bring down lending rates as it scrambles to protect the real economy from a worsening global financial crisis.The central bank slashed its lending rate, or the repurchase rate, for the third time since October, by 100 basis points to 6.5%. It also cut its borrowing rate, or the reverse repurchase rate, for the first time in more than five years by 100 basis points to 5.0%. The RBI, however, kept banks’ cash reserve ratio unchanged at 5.5% and the statutory liquidity ratio at 24%. “The reduction in repo and reverse repo rate should result in a reduction in marginal cost of funds to banks and enable them to improve the flow of credit to productive sectors of the economy on viable terms,” central bank Gov. Duvvuri Subbarao said at a news conference.

He said economic growth may moderate “more than anticipated” in the current financial year that ends March 31, but didn’t give a figure. The RBI estimates the economy will grow between 7.5%-8% this fiscal year as per its earlier estimate. However, Mr. Subbarao said inflation may be significantly lower than the previously estimated 7% for the financial year. India’s inflation rate eased to 8.40% in the week ended Nov. 22 from 8.84% in the previous week, the government said Thursday.The Indian government on Friday cut retail gasoline prices by INR5 a liter and diesel by INR2 a liter. “The fuel price cut will lower headline inflation by 40-45 basis points,” the governor said. The rate cuts come after Prime Minister Manmohan Singh took over the additional charge of the finance portfolio in a ministerial reshuffling in the wake of last week’s terror attacks in Mumbai. Mr. Subbarao has been easing monetary policy since October, joining global peers in pumping cash as credit markets freeze. The credit crisis has deprived companies and consumers of much needed funds. Read More »

Real Estate India Welcomes RBI’s Decision

Welcoming the RBI’s decision to provide a stimulus package for the housing sector, realty firms on Saturday said banks should pass on the benefit of soft interest rate regime to home loan seekers as well as the industry. They also welcomed th e RBI’s decision to give “priority sector'’ status to housing loans up to Rs 20 lakhs, which in their view would lead to increased demand for apartments in the segment. Commenting on the RBI’s decision to cut repo and reverse repo rates, global real estate consultant Jones Lang LaSalle Meghraj Country Head Anuj Puri said: “It was much desired and expected. Interest rates on housing loans should come down'’. He, however , said the government needs to keep a close watch and intervene at regular interval. “This is the first of the many steps that they will have to take to bring confidence'’. RBI today cut short-term lending rate (repo) by one percentage point to 6.5 per cent. It also slashed the overnight rate (reverse repo) by a percentage point to 5 pe r cent. RBI also classified housing loans below Rs 20 lakh as lending to priority sector.

Another realty consultant Cushman & Wakefield Executive Managing Director (South Asia) Sanjay Verma said: “This will essentially work towards maintaining liquidity and reducing overall lending rates. This will help in getting back some demand into the housing sector'’.Parsvnath Chairman Pradeep Jain said interest rates should come down after this decision. He pointed out that banks had not cut the rates after RBI’s earlier decisions and demanded that the central bank should intervene. Unitech, the country’s second largest real estate firm, General Manager (Corporate Planning and Strategy) R Nagaraju said RBI’s decision to cut repo and reverse repo rates is good for the real estate sector as this might lead to a fall in interest rates.

Allow NRI Currency Hedging- ASSOCHAM to RBI

The Associated Chambers of Commerce and Industry of India (Assocham) has recommended that the Reserve Bank of India (RBI) should allow non-resident Indians (NRIs) to hedge their currency risk in Indian currency and provide regulatory approvals, enabling retail investments in Indian stock markets from NRIs and foreigners.

Regulations relating to NRI investment in Indian stock market are complex, cumbersome and archaic and these need to be simplified, said Sajjan Jindal, president of Asocham in a presentation to RBI. According to Jindal, investments by NRI’s are clubbed with those by FIIs for determining the total FII investment limit in any company, as a result of which NRIs are deprived of an opportunity to invest in many companies even when the market is down, he added.

Banks Lending Policies made Easier by RBI

Over the past few years, banks went all out to expand their home loan portfolios. In the present scenario of increasing interest rates and squeezing liquidity, the default rates are expected to increase. Bankers feel that home loan defaults could rise in the light of the economic slowdown. The delay in receipt of EMIs impacts the quality of loan assets of banks negatively. The Reserve Bank of India (RBI) had mandated strict guidelines for provisioning of loan assets of banks.

The RBI has extended guidelines on restructuring, that are currently available to industrial units, small and medium enterprises (SMEs) etc, to encompass home loans given by banks. This would benefit the banks. The RBI has said banks can now avail of the special regulatory treatment relating to asset classification on restructuring of home loans. Previously, the RBI had prescribed a ceiling of 10 years on the repayment period of restructured advances, thereby making housing loans, which have a tenure ranging between 15 and 20 years, not eligible for the special treatment. Home loans can be restructured either by extending the repayment period or by giving a moratorium on interest payment for a certain period. Read More »

Citi gets $20 US Government Support

The mother of all bailouts is on. Citigroup, once perceived as the world’s smartest financial services house, has got a US government support of $326 billion -an amount which is roughly equivalent to one-third of the Indian economy. Citi has received US government guarantees of $306 billion - a cover that will help it sell the sticky assets and irrecoverable mortgages on its books - and a $20-billion cash infusion from the US Treasury, which is over and above the $25 billion it had received earlier. Since Uncle Sam is not pushing through any management changes at Citi, CEO Vikram S Pandit gets to keep his job, at least for now. However, the US government will get $27 billion of preferred stock, paying 8% dividend.

After the stock crashed last week, there were speculations that Mr Pandit will have to quit and Citigroup - with $3-trillion assets under management - may be sold in parts. The biggest banking rescue deal was quickly cobbled together over the weekend before markets could further punish the scrip and paralyse the financial system. When trading resumed on Monday, the Dow was in the green. The European markets also cheered the state support for Citigroup and were up between 2% and 5%, amid expectations that president-elect Barack Obama will push for an unprecedented government role in reviving growth and stabilising the financial system. Read More »