Chennai: The Reserve Bank provided some relief to the realty sector by extending asset downgrade of commercial project loans by a year and allowing scheduled commercial banks to provide incremental credit to the residential sector. However, the sector finds that the decision to keep repo rates unchanged will not address its biggest issue—low consumer demand.
“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,” the RBI said. This is in line with treatment accorded to other project loans for non-infrastructure sector and would complement the initiatives taken by the government in the real estate sector, the central bank said.
The industry welcomed the move. “This is a big move and will bring the much-needed relief to the cash-starved real estate sector - and to both developers and the housing finance companies from the liquidity perspective. It will help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them to completing several stuck projects,” said Anuj Puri, chairman, Anarcok Property Consultants.
According to Jaxay Shah, chairman, Credai National, RBI’s decision to permit extension of date for commercial projects stuck for reasons beyond control of the developers under institutional debt will be instrumental in bringing much-needed relief to developers.
Recognising the real estate sector as a productive sector having multiplier effects to support impulses of growth, the RBI allowed scheduled commercial banks 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 cash reserve ratio (CRR). This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020.
“With the lower provisioning requirement for retail loans extended to the housing segment, we hope that the new measure will translate into lower cost of loans for home buyers as well,” said Shishir Baijal, chairman and managing director, Knight Frank.
However, the sector has been looking forward for rate reduction and better transmission of rates to push demand at the consumer level.
“After a no-show Budget, the real estate sector was keenly looking towards the Reserve Bank of India (RBI) for providing some lending rate concessions to boost demand,” said Rajan Bandelkar, president, Nardeco Maharashtra.
