The RBI has paused on rates given the concerns over inflation. While the market was expecting a status quo, the real-estate sector appears to be disappointed. Speaking to Bloomberg TV India , DLF CEO and Managing Director Rajeev Talwar says RBI could have cut rates given the IMD’s prediction of an above-normal monsoon and its sobering impact on inflation in coming months. Banks should transmit the RBI rate cuts to revive demand in the real estate and housing sector, he said.
What do you interpret from the RBI Governor’s commentary? From India Inc’s stand point, how do you see the picture shaping up?
They should have taken a step forward (on rate cut) because the monsoons are predicted to be good. As for the macro factors that he is talking about — including the inflationary trend — I am sure that he could have taken a call in future as food prices will see a dip. So rather than wait for the macroeconomic factors to settle down, I think the RBI Governor could have taken a call (on rate cut). But overall, the RBI stance has been accepted well by the market. Therefore, one has to bear with this. And for at least another six weeks, we have to wait and watch, by when the monsoon will kick in.
I think the real-estate sector was expecting lending rate cuts. The RBI itself has said that banks have passed on only one-third of the repo rate cuts since January 2015. There was a meeting between the heads of the banks and the Finance Minister on Monday and they discussed that RBI rate cuts should get translated into lower rates for home loans. But for the real-estate sector, we would expect the market to respond well. There is latent demand in the market, which is not surfacing possibly because consumers are waiting for interest rates to go down. So for us, the sooner it happens the better.
The RBI has lowered rates by 150 bps so far since January 2015, but not enough has happened from the lenders’ side. So is it right to say that this has hurt and they continue to postpone purchases?
You are right. With the indications and announcements of the rate cut, everyone was hoping the banks will pass it on to consumers. It is either the problem of NPAs or it is their margins and the arbitrage which they expect, that is holding them back.
But everyone is just waiting on the sidelines to step in as soon as there is a rate cut from banks. So whether it is the RBI, which cuts the interest rates further, or whether it is the banks that pass on the earlier cuts, one way or the other the market, in order to move forward, will have to reinforce to the buyers that they will have to pay lesser and lesser in EMIs. That is the buyers’ expectation and that is what is keeping them away from stepping into the market. With a good monsoon, we hope for lower rates in coming days. And buyers do take a chance and expect the next rate cut to be passed.
Banks’ lending has been a major concern for some time especially in sectors such as steel, cement and real estate. Do you see any shift in the trend?
No, I wish there would be a change. And I also wish on behalf of the industry that there is a reduction in the risk weightage because home loans of individual buyers are the best asset class that a bank can have.
And this is one industry, which gives a collateral in the form of a land parcel, or even better than that in brick and mortar. So one hopes that the real estate and financing industries will undergo a change if banking institutions step in. Compared with other industries, I am certain that they will fare better while advancing loans to the real estate, housing and construction sectors.