Saturday, 7 February 2015

Credit policy will increase lending activity

Developers and bankers are pleased with the SLR rate cut, which will provide the banking sector around Rs 40,000 crore more in lendable funds to the sector.

The Confederation of Real Estate Developers' Associations of India (CREDAI) expressed mixed reaction to the RBI's credit policy.

On the one hand it made clear its unhappiness over the RBI's decision not to cut the policy interest rate - contrary to the general expectation--and on the other hand, CREDAI welcomed the decision of the central banker to reduce SLR rates by 50 basis points, which would place more funds in the hands of the private sector for lending.

The RBI's decision to double foreign exchange remittance limit to $2,50,000 for individuals to purchase property abroad, as a part of liberalized remittance scheme, can divert investment in property away from India and adversely impact the real estate sector at a time when market sentiment for the sale of new housing and other commercial real estate is down, Navin Raheja, chairman of Naredco, said.

Therefore, the RBI should consider excluding purchase of property abroad under the liberalized remittance scheme in the Foreign Exchange Management Rules, Raheja said. He quoted a research report on the decline of residential sales by 17% in 2014, compared to the previous year and a drop in new housing project launches by 28% in the same period in the Top 6 markets of the country.

However, developers and bankers expressed happiness over the rate cut, by 50 basis points in the statutory liquidity ratio (SLR), which will provide the banking sector around Rs 40,000 crore in lendable funds.

Availability of more funds will prompt banks to cut the interest rates. A banker said that as banks are flush with funds, they would be forced to cut both the deposits as well as lending interest rates.This will ease the money market considerably. Developers also want the government to include real estate in the infrastructure sector, which will enable banks to lend to developers directly and help bring down the costs.

Set It Right: Stakeholders are hoping that budget 2015-16 will incentivize the housing sector and improve market sentiment, which is very crucial for revival of the sector.

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