RBI's move to put EMIs on hold a big relief for homebuyers, builders: Experts

RBI's move will help builders in loan repayment and working capital management and homebuyers in servicing loans, say experts.

The Reserve Bank of India on March 27 asked banks, NBFCs and other lending institutions to allow a three-month moratorium on payment of installments on term loans, as the central bank came out with a raft of measures to alleviate the pain and disruption caused by coronavirus.

The deferment would not be classified as default and not impact the credit history of borrowers, it said.

The decision was cheered by experts who said it will act as a “sedative” for real estate developers and ameliorate the immediate pain by providing relief on loan repayments and working capital management while homebuyers will get a breather on servicing their loans.

“The moratorium of three months on EMIs on all outstanding loans (that) will ensure no impact on credit ratings on loan repayments” was a welcome move, said Niranjan Hiranandani, president, Assocham and Naredco

The central bank also cut the repo rate by 75 bps to 4.4 percent, the lowest in at least 15 years. It allowed banks to defer interest payment on working capital loans until June 2020.


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“All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, 2020,” the central bank said.

RBI Governor Shaktikanta Das said these were extraordinary circumstances and unprecedented measures were required to support the sagging economy.

Hiranandani said fresh liquidity of Rs 3.74 lakh crore had been injected into the system by unleashing arsenal support through strong fiscal measures.

“The reverse repo rate which has been cut by 90 basis point stands at 4 percent now. This should compel banks to lend more to all the adversely hit sectors,” he said.

It is a big relief for developers and homebuyers as well. Developers as of March 2020 owe banks, NBFCs and HFCs around Rs 4.5 lakh crore.

The moratorium would definitely benefit homebuyers as these financial institutions had lent around Rs 20 lakh crore as of March 2020, said Ramesh Nair, CEO & Country Head, JLL India.

“It is important for immediate transmission of these rate cuts to the homebuyers, which will boost consumer sentiment. State governments should also take necessary steps to utilise the cumulative Rs 31,000 crore funds for the welfare of building and construction workers to help those who are severely impacted by the economic disruption on the back of the lockdown,” he said.

Anckur Srivasttava of GenReal Advisers said the move would “act like a sedative and ameliorate the immediate pain by providing relief on loan repayments and working capital management for the real estate industry”. Most developers were struggling with cash flow issues and would now be able to focus on using their limited cash for taking care of their workforce and salaries, he said.

But, he said, the pain would only be relieved for the next couple of months. “The demand shock and oversupply issues still remain and as the recovery begins, a comprehensive package would be the next logical step,” he said.

Homebuyers EMIs may also be pushed by three months. “But it would depend on homebuyers if they would want to continue paying their EMIs for the next three months or defer them by three months as the interest for the three-month period would still accrue,” said Srivasttava. The loan would be extended by three-month period, he said.

"Developers now get breathing space to get their financial act together, at least for now. Moreover, the fact that non-payment of EMIs will not cause loans to turn bad is a major relief," said Anuj Puri, Chairman, ANAROCK Property Consultants.

The RBI’s announcements exceeded the industry’s expectations.

The central bank ticked all boxes of a rate cut, liquidity infusion and moratorium. These steps would help the economy to stay stable despite the lockdown and economic disruption, said Shishir Baijal, chairman and managing director, Knight Frank India.

Banks would have to sure a quick transmission of the rate cut or the whole effort would be futile, said Amit Modi, president-elect CREDAI Western UP and director ABA Corp. “We also welcome the three-month moratorium on EMIs as this would bring relief to millions of homebuyers across the nation," Modi said.

“We do hope the moratorium of three months on term loans announced by Governor, RBI, covers both interest and principal amount. In addition, RBI may consider providing additional capital for business continuity and payment of wages to real estate until the return of normalcy,’’ said Satish Magar, president, CREDAI National.

The moratorium would assuage fears of a downgrade of credit ratings and need to recognise NPA due to a potential non-payment of instalments, which would be a challenge in the face of the lockdown, Gaurav Karnik, National Leader, Real Estate, EY India, said.

“This three-month moratorium will help banks and financial institutions to keep their financial books healthy by avoiding a large onset of NPAs. For buyers, it would help ease the burden on their savings and prevent loan defaults,” said Sunil Mishra, CEO of Trespect.

Savills India CEO Anurag Mathur termed the announcements as radical and exemplary, saying the central bank had gone all out to revive growth and preserve the stability of the financial ecosystem.
Vandana Ramnani
first published: Mar 27, 2020 01:52 pm

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