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RBI, lenders huffing & puffing over interest rate cuts
Posted on Apr 21, 2015

For Indias Central bank, the government and more importantly borrowers, its been frustrating. Much after inflation inched down — way below the projected trajectory of the Reserve Bank of India — and two interest rate cuts by the RBI, by 25 basis point each time since the start of the year, most local lenders have been unmoved.

That was enough for RBI Governor, Raghuram Rajan to indulge in some plain speaking: “I do not see an environment where credit growth is tepid; banks are sitting on money so to speak and their cost of funding, their marginal cost of funding has fallen, the notion that it has not fallen is nonsense.” That appears to have prompted SBI and ICICI Bank to lower rates hours later but most banks are still unmoved.

But is this tough talk by the RBI enough to bring down EMIs and boost demand? Are more rate cuts needed to ensure a rebound in growth? It does seem so. A Deutsche Bank report says, “retail inflation has fallen 400 basis points in the last 12 months, and will likely ease further in FY16, while RBI has not even cut the policy rate to the level (7.25 per cent) that prevailed before the currency crisis erupted in mid-2013. Clearly if the RBI wants its monetary action to help accelerate the investment recovery, more rate cuts would be required and that too in a front loaded manner.”

Except for State Bank of India, other state owned banks are yet to announce any reduction in their lending rates. For instance, the base rate — or the rate below which these banks cannot lend — of PSU banks like Punjab National Bank and Central Bank of India is still 10.25 per cent. The benchmark prime lending rate of Central Bank is at a high of 15 per cent. “The impact of reduction in cost of deposit experienced during the last quarter will encourage banks to pass on the benefit to customers,” said VR Iyer, chairperson & managing director, Bank of India.

But banks, too, have defended their stance. On April 7, soon after the RBI announced a status quo monetary policy, chairman of State Bank of India, Arundhati Bhattacharya, defended the delay on the part of banks in transmitting the policy rate cuts to customers saying, “it takes a little time for things to pass through … there are very many factors and repo is only one of the factors.” However, later in the day it cut its base rate to 9.85 per cent and subsequently slashed home loan rates. SBI was followed by rate cuts by ICICI Bank, HDFC Bank, Axis Bank and other small private banks.

SBIs home loan rate is pegged at 9.85 per cent (for women), leading to a reduction in EMI to Rs 867 per lakh while the interest rate for Central Bank of Indias Cent Home Loan scheme is 10.25 per cent.

WHY BANKS ARE RELUCTANT?

The big question is: Why are banks so hesitant to bring down lending rates? The reasons are structural — some of them self-inflicted — which cant just be wished away overnight. “Benefits of easier monetary policy have yet to reach the real economy. Banks remain hesitant to lend due to worries over asset quality, uncertain demand recovery, lack of clarity over upcoming cuts and availability of alternate funding options,” said Radhika Rao, economist, DBS Bank.

Another major hurdle is poor asset quality of PSU banks. Banks gross non-performing assets (NPAs) increased to 4.5 per cent of advances at the end of December 31, 2014 from 4.2 per cent on September 30, 2014. While the gross NPA percentage crossed 5 per cent for PSU banks, for private banks it was marginally up at 2.1 per cent. Many corporates, especially in the infrastructure sector, are over leveraged and have defaulted on loans taken from PSU banks. A cursory look at the balance sheets of such defaulters reveals that banks went on extending loans even after their debts mounted. Neither the RBI or the government appear to have stepped in earlier.

Theres a view that aggressive rate cuts would lift lending. If history is any indication, this is not the case. According to bankers, during the last easing cycle between January 2012 and mid-2013, the base rate fell by a modest 40 basis points despite a lowering of rates by over 100 bps- both repo rate and cash reserve ratio.

Bankers say the shift by corporates from bank-based funding has added to slow loan growth, which in turn has failed to spur lenders to slash rates. “Corporates have increasingly resorted to bond issuances or commercial papers to meet funding needs. Money market borrowing costs are 100-150 bps lower than banks base rates. Varied tenor needs are being fulfilled by the central banks push for longer-term papers,” Rao said.

Rao says the shift is likely permanent. The RBI itself has proposed that part of the corporates capital needs to be raised from bond and commercial paper markets to lower dependence on banks. This is already in motion as banks share in corporate borrowings has eased from about 100 per cent in 2004-05 to 60 per cent in 2011-12, while non-bank sources inched up to about a third, she says.

Whats the way forward? Stronger demand, supportive fiscal policy and redressal of the banks stressed assets are probably required to boost lending. However, this appears to be a long-drawn process for banks weighed down by huge bad debts.


Goa's real estate scene harsh, makes afforable homes a dream
Posted on Apr 21, 2015
Top architects in the state claim that excessive speculative housing, which effectively means future housing prices driving a current demand for housing, and the trend of second homes need to be curbed by a comprehensive housing policy.Speaking to IANS on the sidelines of an international architecture forum in the state capital, former chairman of ...

Eden Group Launches New Residential Project - Eden Richmond Park!
Posted on Apr 20, 2015
Eden Group is the leading real estate company in Kolkata that has off late built a formidable reputation for itself in the reality business. They primarily focus on meticulous planning, place attention towards architectural variations and relies on the cutting edge technology. Over the years, they have delivered inexplicable products to hundreds of ...

Piramal now said to have invested in Shriram Group's real estate business
Posted on Apr 20, 2015
After it invested in Shriram Groups financial services business, the Piramal group put in Rs 75 crore in Shriram Summit, a residential project coming at electronics city in Bengaluru, sources said. Shriram Properties is reportedly in talks with the Piramal Enterprises, ICIC Pru, Ask Property and others to raise around Rs 300 crore to support its R ...

Golden Tulip Hotels expands footprint with launch of Vasundhara Delhi-NCR
Posted on Apr 20, 2015
Golden Tulip Hotels continues to expand its footprint in India with the launch of its new property - Golden Tulip Vasundhara Delhi-NCR in the premium and luxury category.Launched in 2007 in India, the company now has 17 operational properties all over the country and three new properties opening under four and five star categories this year, which ...

Hyderabad: Eastern suburbs offer new launches
Posted on Apr 20, 2015
HyderabadAre you looking for a new launch or recently launched project in Hyderabad? Chances are that you may come across some of these projects in the eastern part of the city. Why? Well, read on.Reeling under the pressure of unsold inventory, all prime developers have held back new launches in the city. However, certain locations in the eastern p ...

Delhi government lifts ban on illegal construction registration
Posted on Apr 20, 2015
Delhi/NCRDelhi government has lifted the ban on registration of properties that have been booked for unauthorized construction by the municipal corporations. The revenue department had imposed the ban through an order dated April 26, 2011. However, the government stated that illegal construction will remain actionable by the authorized agency. Also ...

Demand for office space up in south
Posted on Apr 20, 2015
BangaloreBengaluru south has been one of the major real estate hubs of the city, witnessing hectic development across all fronts residential, commercial and retail. Strong infrastructure and presence of preferred residential localities contributed to the development of this zone.Commercial development across Bengaluru south picked up pace with the ...

Investment in real estate plummeted 6% in 4 years: Poll
Posted on Apr 20, 2015
Investment attracted by the real estate sector from various public and private sources across India have declined by 6 per cent in the last four years, says a survey. The investment fell to Rs 14.3 lakh crore in 2014-15 from a level of Rs 15.2 lakh crore in 2011-12, the survey by Assocham said. Real estate projects involving about 76 per cent of th ...

Mahagun launches luxury housing project in Noida
Posted on Apr 17, 2015
NEW DELHI: Real estate developer Mahagun has announced the launch of a luxury housing project - 'M Collection' -- in Noida. It offers a bouquet of luxury and ultra-luxury homes - villas, villaments, condominiums and penthouses.Speaking at the launch, Amit Jain, Director, Mahagun, said, "We have been immensely inspired by the Czar of international r ...

Eiffel Tower at BKC by Kanakia Spaces
Posted on Apr 17, 2015
If not big enough to the size of actual masterpiece, it matches the touch of French elegance and art – our own Eiffel Tower at BKC. Touted as the ‘concrete jungle, Mumbai is fast scaling up with artistic display of creativity and Eiffel Tower at Kanakia Paris is one such initiative. The magic of metal is all set to enthrall Mumbaikars with its fin ...

Shapoorji Pallonji group offers to invest Rs 20,000 crore in Hyderabad
Posted on Apr 17, 2015
HYDERABAD: Chief minister K Chandrasekhar Rao's plans for a state-of-the-art Secretariat complex has received a shot in the arm on Thursday with real estate major Shapoorji Pallonji Group offering to build it.The company also expressed its willingness to construct the mega cultural hub, Telangana Kala Bharathi and a better road network for the city ...

Home loan rates get cheaper, but here's a trick borrowers need to know
Posted on Apr 17, 2015
The real estate industry as expected has gone gaga over these interest rate cuts. Getamber Anand, the president of Confederation of Real Estate Developers Association of India (CREDAI), told The Economic Times: "Single-digit home loan rates coupled with the festive season will surely bring fence-sitters to the market and boost housing demand from O ...

ICICI Bank cuts home loan rates by 25 basis points for all existing and new customers.
Posted on Apr 17, 2015
ICICI Bank, Indias largest private sector bank, has reduced its home loan rates by 25 basis points for all existing and new customers. With this, women as well as applicants from weaker sections will get home loans at 9.85%. The rate will be 9.90% for all others. The reduced rate was effective from April 14, 2015 for new borrowers.The Bank has als ...

IIFL raises Rs700 crore, invests in two Mumbai projects
Posted on Apr 17, 2015
Mumbai: Financial services firm IIFL Group has raised Rs.700 crore for its new residential housing fund, the IIFL Real Estate Fund (Domestic) Series II, and has closed the first two transactions in projects in Mumbai, said a top executive.IIFL, which started raising Rs.1,000 crore in mid-January, will now raise the remaining capital in the next mon ...

SBI expects home loan portfolio to grow by 18% in FY'16
Posted on Apr 16, 2015
MUMBAI: The country's largest lender State Bank of IndiaBSE 0.50 % is expecting its home loan portfolio to grow by 18% and does not foresee any rate wars even as leading lenders rushed to align their home loan rates with that of the leader."We are expecting a growth of 18 per cent in current fiscal against 14.5 per cent in the recently concluded 20 ...

Office space biz climbs out of a rut
Posted on Apr 16, 2015
KOLKATA: The commercial real estate sector in Kolkata seems to be looking up, with an improved absorption rate, in the past few months, bringing some cheer in Bengal's gloomy industrial scenario.Since the last quarter that ended on March 31, 2015, the rate of commercial space utilization has been 10-15% higher every month over the last year. This h ...

DHFL revises home loan interest rate to 9.9%
Posted on Apr 16, 2015
DHFL, a housing finance company in the private sector has revised its home loan rate to 9.90% p.a. with effect from April 15, 2015. Further to the recent announcement made by the Reserve Bank of Indias decision to cut the interest rates, the step taken by DHFL will enable to pass on the benefit to its end consumers. This reiterates the companys v ...

Delhi Prime Location Housing Prices Down up to 20%: JLL India
Posted on Apr 16, 2015
New Delhi: Housing prices in many prime colonies of the national capital have declined by up to 20 per cent since 2013 but the rates were stable in Gurgaon and Noida, according to property consultant JLL India.The Delhi-NCR property market is currently "under stress" and offers attractive valuation for end-users, it said."Residential prices in esta ...

Now, ICICI bank cuts home loan rates
Posted on Apr 16, 2015
MUMBAI: ICICI Bank has matched its lending rates with that of market leader State Bank of India.A week after it announced a 25 basis point reduction in its bench mark base rate the bank said that it will continue to maintain the same spread for home loans which means that women and low-income borrowers will get loans at 9.85 per cent which is 10 ba ...




Recent Articles
RBI, lenders huffing & puffing over interest rate cuts
Goa's real estate scene harsh, makes afforable homes a dream
Eden Group Launches New Residential Project - Eden Richmond Park!
Piramal now said to have invested in Shriram Group's real estate business
Golden Tulip Hotels expands footprint with launch of Vasundhara Delhi-NCR
Hyderabad: Eastern suburbs offer new launches
Delhi government lifts ban on illegal construction registration
Demand for office space up in south
Investment in real estate plummeted 6% in 4 years: Poll
Mahagun launches luxury housing project in Noida

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