RBI Hikes Limit For Real Estate Loans By Co-Op Banks

The Reserve Bank of India on June 8 doubled the amount of loans that urban cooperative banks (UCBs) can issue for housing. The revision is done in order to factor in the rise in house prices.

It has also been decided to permit UCBs to extend doorstep banking services to their customers. This will enable UCBs to meet the needs of their customers, especially senior citizens and differently abled. The guidelines governing the maximum permissible loan limits for cooperative lenders were last reviewed over a decade ago.

Considering the importance of cooperative banks in promoting inclusive growth, three measures were announced for the cooperative banking sector:

The limits for individual housing loans being extended by Urban Cooperative Banks (UCBs) and Rural Cooperative Banks (RCBs- State Cooperative Banks and District Central Cooperative Banks) which were last fixed in 2011 and 2009 respectively are being revised upwards by over 100 per cent taking into account increase in house prices. This will facilitate better flow of credit to the housing sector.

In line with the dispensation available to Scheduled Commercial Banks (SCBs) and UCBs, it is now proposed to permit Rural Cooperative Banks (RCBs- State Cooperative Banks and District Central Cooperative Banks) to extend finance to ‘commercial real estate – residential housing’ (i.e. loans for residential housing projects), within the existing aggregate housing finance limit of 5 per cent of their total assets. This measure will further augment credit flows from the cooperative banks to the housing sector.

To continue its fight against the increasing inflation, the Reserve Bank of India (RBI) has increased the repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 4.90 per cent on the basis of an assessment of the current and evolving macroeconomic situation.

With this 50-bps change, the repo rate stands at 4.9 per cent.

This is the second hike by the central bank in last two months. The RBI had hiked repo rate by 40 basis points in May during its surprise meet with Monetary Policy Committee (MPC).

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

RBI has also raised the inflation forecast at 6.7 per cent during financial year 2022-23.

“Taking into account these factors, and on the assumption of a normal monsoon in 2022 and average crude oil price (Indian basket) of USD 105 (INR 8,156) per barrel, inflation is now projected at 6.7 per cent in 2022-23, with Q1 at 7.5 per cent; Q2 at 7.4 per cent; Q3 at 6.2 per cent; and Q4 at 5.8 per cent,” the bank said.

How Market Sees The Move

Expressing views on the hike of RBI repo rate, ANAROCK chairman Anuj Puri said that real estate sector is moving towards the red zone and any further hike will reflect markedly on housing sales.

“As anticipated, with inflation edging higher in the aftermath of the Russia-Ukraine war and the surging oil prices, the RBI has decided to increase the repo rates by 50 bps. It is now increased to 4.90%. A hike was inevitable, but we are now entering the red zone. Any future hikes will reflect markedly on housing sales,” he said.

Meanwhile, Chief Economist of Yes Bank Indranil Pan said that the decision is aggressive and has been built in the worst scenario on inflation expectation for the moment.

“We still believe that the front loading strategy will continue and thus pencil in another 40 to 50 basis points increase in the repo rate in August policy. Thereafter the RBI may have to be more linient in the extent of increases, keeping in line with its current inflation trajectory which also points to a sub-6 per cent number in the fourth quarter. By December the RBI should have raised the policy rate to 5.80-6 per cent and pause thereafter to assess the implications of the cumulative 180-200 basis points increase on both growth and inflation,” he added.

Vinod Nair, Head of Research at Geojit Financial Services said, “The market and rate-sensitive stocks and sectors should not be dampened by the strong rate hike of 50bps as it is in line with the elevating inflation scenario and accordingly equities have been consolidating during the year.  On the bright side, there are some points of ease such as no increase in CRR, economic growth being maintained healthy at 7.2 per cent and no additional measures announced to reduce the liquidity of the banking system.”

Mazars Advisory LLP Managing Partner Bharat Dhawan said that it came on expected lines that the RBI has opened its guard against the monstrous serpent of inflation.

“The instant monetary policy review not only presents the fight against inflation becoming the paramount concern but also reveals the shivering and feverish fears faced by the policymakers when the MPC withdrew its accommodative stance on growth,” Dhawan added.

On the other hand, Rajni Thakur, Chief Economist, RBL Bank said, “MPC decisions announced this morning- 50 bps hike in policy rates, resetting inflation projections and no change in Cash Reserve Ratio (CRR)- were all broadly along the expected lines. Coming right after an inter-policy MPC in May, which kind of spooked the market a bit, RBI choosing to stay predictable this time will help sooth market sentiments.”

“We now expect a further rate hike of 50 bps in August, taking Repo rates higher than pre-Covid levels, followed by pause to re-access the macro-dynamics and hikes in smaller quantum thereafter pushing year end Repo-rates close to 6 per cent levels,” Thakur added.

Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “RBI’s projections of GDP growth rate of 7.2% and inflation of 6.7% for FY23 reflect a realistic monetary policy. The higher inflation projection indicates that the central bank recognises the seriousness of inflation and the 50 bp repo rate hike is a message that they are determined to anchor inflation expectations.”

The PHD Chamber of Commerce and Industry (PHDCCI) observed that hard lending from an accommodative policy stance is disappointing as it will have an impact on costs of doing business and production possibilities.

“Though RBI’s decision to raise the repo rate by 50 bps to 4.9 per cent is in synchrony with its efforts to tackle persistently heightened inflation, however it will impact India’s economic growth due to dampened demand scenario and discouraged consumer and business sentiments,” it added.