Over a series of rate cuts since last year, the Reserve Bank of India has reduced the repo rate to 4 per cent, a whopping reduction of 2.5 per cent since January 2019. And yet, those paying EMIs for their home loans have been passed on only a fraction of this relief.
According to CREDAI, the apex developers' body, the maximum reduction passed on by the bank to the borrowers has been between 0.7 and 1.3 per cent, barely half of the reduction in the repo rate. CREDAI has now written a letter to RBI Governor, Shaktikanta Das requesting to pass on the benefit of reduction in repo rates and reverse repo rates to Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) as well.
"During the current crisis emanating from the COVID-19, RBI has announced various measures to infuse liquidity in the system. However, the real estate sector has not been able to leverage the benefits of this reduction in repo rates. One of the major restricting factor remains that while the RBI has reduced 2.5 per cent in repo rate since January 2019, the maximum reduction passed on by the bank to the borrowers has been between 0.7 to 1.3 per cent largely from August 2019 till date, and in some case, the benefit has not been passed at all," the developers' body said in its letter.
Being the second-largest employer of the country, the realty sector contributes substantially to the GDP and accounts for almost 11 per cent of bank credit besides having backward and forward linkages with almost 250 industries including cement and steel.
"Our survival henceforth becomes crucial for the economy. Real estate industry is still getting access to finance at much higher rates, therefore, provision of appropriate directions to the banks for percolating the benefits of the rate cuts to the NBFCs and HFCs needs to be made," CREDAI said.
For the real estate sector, NBFCs and HFCs are a major source of financing. It added that passing benefits of the rate cut to NBFCs and HFCs would enable them to lend to the real estate sector at a lower rate of interest, which will help in the survival of the crumbling industry.