RBI’s Credit policy may not affect home loans

October 29, 2009	(Be the first to rate this story!)  Loading ...
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The credit policy announced by Reserve Bank of India (RBI) governor Subba Rao on Tuesday may have hints of a tighter credit regime, but it may not have an impact on the interest rate structure for home loans, say experts. Experts say that their opinion is based on two facts. First, the demand for homes and home loans, in turn has gone up in the wake of the soft rate regime put in place by the finance minister early this year as part of his anti-recession measures. Second, the Centre has already expressed concerns about the bankers’ unwillingness to pass on the benefits of the revival package announced by the finance minister.

Shobhit Agarwal, joint managing director for capital markets at real estate research and advisory firm Jones Lang LaSalle Meghraj, tells TOI that the banks will now be a little more cautious while lending to real estate players, however, interest rates are at their lowest in recent times, and even a marginal hike due to this tightening in provisioning, will not affect the overall sector seriously. “The current credit policy has made only two changes that could conceivably affect the real estate sector. For one, the statutory liquidity ratio (SLR) has been increased by one per cent. Secondly, the provisioning for real estate loans has been increased to one per cent from the earlier 0.4 per cent. The impact on the sector is not significant as we see it. Rather, it might help, as the Central Bank is trying to curb the formation of an asset bubble - in other words, trying to control the asset prices for end users,” Agarwal says.

If well-implemented, this policy will benefit property buyers in the long run, Agarwal observes, adding that as the projected increase in inflation is in line with India’s long-term inflation history, and is automatically factored into the markets and overall market sentiments, this would not hamper the green shoots of recovery, which are currently being witnessed after a protracted slowdown period over the previous year. “The realty sector, especially in the home segment, has already witnessed some price rise and an interest rate revision, which in any case will be small, may actually help slowdown the spiralling price rise,” says a senior banker requesting anonymity. “As the home loan interests are between 8.75 per cent to 12 per cent for most banks there is actually some scope to revise the rates upwards, he feels.

Rohit Gera, vice president of Credai Pune and joint managing director of Gera Developments, said increasing the lending rate for realty developers would ultimately have an impact on the end-buyer. That could have avoided even the mild’ rate rise expected in home loan rates, he says. “The policy could have spared the affordable home projects as there is no question of hotting up of this segment as only genuine buyers are buying affordable homes,” Gera says. On the commercial side, Gera says, the sales are down thanks to the sluggish mood globally, and increase in the interest rates for commercial projects will further dampen the spirit of developers. Navneet Munot, chief investment officer of State Bank of India Mutual Fund, says the priority for the central bank is shifting to anchoring inflationary expectations and supporting the growth process. The central bank would surely keep a vigil on any signs of building of an asset bubble due to excess liquidity.

News Published Under:   Real Estate India, Banking and Finance, Home Loans |

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