RBI's 40 bps rate cut to revive auto, real estate sales, say CEOs

The CEOs of top Indian companies are expecting the 40 basis points rate cut announced today by the Reserve Bank of India (RBI) to spur demand and revive sales which has crashed to near zero in the last two months -- due to the nationwide look-down announced by the Indian government to control coronavirus pandemic. The two worst-hit sectors -- automobiles and real estate sector -- will benefit the most by the 115 basis point cut in rates since March this year by the RBI.

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

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

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A lot will depend on "how much and how quickly the banks can pass it on to the borrowers. Close to 80 per cent cars in India are bought on credit. Therefore, any reduction will help in retail as well as channel financing," said Shashank Srivastava, executive director of India’s largest car maker, Maruti Suzuki India.

Rajan Wadhera, President, SIAM, said the RBI step will reduce the cost of borrowing for traders and consumers and hence would positively impact consumer demand. “We are hopeful that banks will pass on the benefit and support demand creation for discretionary products, like automobiles,” said he.

CEOs said the pandemic has hit Corporate India’s cash flows which was far higher than their initial estimates. “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 Limited

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For the residential real estate sector, interest rate cut is a great news as owning a hom s becomes more attractive for first-time buyers as well as investors. “However, capital is still limited and would be rationed, despite lower interest rate, is costing more. It is imperative for the Government to 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 RBI will take a decision soon once it is clear about the lockdown’s impact on the economy and cash flow,” said Sanjay Nair, CEO and MD of JLL.

CEOs said there has been a total collapse in demand in both urban and rural India since March 2020. “The lending institutions are being permitted to restore the margins for working capital to the origin level by March 31, 2021. This is a step in the right direction,” said Niranjan Hiranandani, Chairman of Hiranadani group.

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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 the industries across the board and help in its quick revival," he said.

Kamal Khetan, MD and CEO of Sunteck Realty said today’s 40 basis points cut announced by the RBI would give big boost to demand for credit appetite among new home buyers to avail housing loan resulting in growth of real estate sector. “We believe the announcements will help sustain positive market sentiments and give maximum mileage to organized and established developers,” said he.

(Dev Chatterjee & Shally Seth Mohile)