India Inc welcomes RBI's rate cut, says will revive demand in auto, realty

Falling rates to help; rise in group exposure limits will support large companies

The CEOs of top Indian companies expect the 40-basis point rate cut announced by the Reserve Bank of India (RBI) on Friday to help spur demand and revive sales, which have crashed to near zero in the last two months because of the nationwide lockdown to control the spread of coronavirus. The two worst-hit sectors — automobiles and real estate — will benefit the most from the 115-basis point cut in rates since March, they said.

The RBI’s move to allow commercial banks to raise their group exposure limit from 25 per cent to 30 per cent will enable greater flow of credit to large corporate groups like the Tatas and Reliance Industries, the CEOs said.

These measures, according to them, are significant to tide over the short-term working capital challenges faced by top corporates and will give them a breather to focus on restarting their business operations.

A lot will depend on "how much and how quickly banks pass it on to borrowers. Close to 80 per cent cars in India are bought on credit. Therefore, any reduction will help retail as well as channel financing," said Shashank Srivastava, executive director, Maruti Suzuki India. Rajan Wadhera, president of Society of Indian Automobile Manufacturers (SIAM), said the RBI's step will reduce the cost of borrowing for traders and consumers, and hence will positively impact consumer demand. “We hope that banks pass on the benefit and support demand creation for discretionary products, like automobiles.”

The CEOs said the pandemic has hit Corporate India’s cash flows. “The RBI has announced steps to ease liquidity and revive the economy as demand from both rural and urban areas has suffered. These initiatives have raised hope as they will provide some financial relief to borrowers with their equated monthly instalments (EMIs) and make it cheaper to take new home loans,” Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure.

For the residential real estate sector, the interest rate cut is great news as owning a home becomes attractive for first-time buyers, and thus investors. “However, capital is still limited and would be rationed, despite the lower interest rate. The government must curb the spread of the virus to truly revive the economy within the next few weeks,” he said.
 

“One-time restructuring of loan is the need of the hour, more importantly for the real estate sector, which is severely ailing due to the pandemic. It is expected that the RBI will make a decision soon once it is clear about the lockdown’s impact on the economy and cash flow,” said Ramesh Nair, CEO and country head, JLL.
 

The CEOs said there has been a collapse of demand in both urban and rural India since March. “Lending institutions are being permitted to restore the margins for working capital to the original level by March 31, 2021.  This is a step in the right direction,” said Niranjan Hiranandani, chairman of Hiranandani Group.

The announcement to convert the accumulated interest for the moratorium period into a term loan was also a good idea. “It will also provide some relief as the borrower will not have to immediately repay the accumulated interest on the loan after the moratorium ends,” Hiranandani said. "The real estate industry, however, awaits one-time debt restructuring so that it gives a breather to industries across the board," he said.
 

Kamal Khetan, MD and CEO of Sunteck Realty, said the rate cut announced by the RBI would boost credit appetite of prospective homebuyers. “We believe the announcements will help sustain positive market sentiments and give maximum mileage to organised and established developers,” he said.
 

“The move will not only help developers but also homebuyers, who have been under extreme pressure due to the prolonged lockdown which has impacted their income. What needs to be seen is how quickly banks reflect this change in their respective rates,"  said Dhruv Agarwala, group CEO, Housing.com, Makaan.com, and Proptiger.com.