RBI Decisions: Experts Hail Support to MSME, Other Measures

The RBI Governor Shaktikanta Das announced a slew of decisions of the Monetary Policy Committee on June 4 that have been widely welcomed by the experts across bank, financial institutions, others. 

Recognizing the risks associated with the second wave, the RBI revised down its GDP forecast to 9.5 per cent for FY22 while revising up its inflation forecast to 5.1 per cent for the year.

Most significantly, the RBI left the policy rates unchanged for sixth straight time (Repo rate  unchanged at 4 per cent and the reverse repo rate at 3.35 per cent).

It also avowed to continue accommodative stance "as long as necessary" to revive growth and help sustain it on a durable basis. This commitment by the central bank was supported by additional measures announced today such as a separate liquidity window of Rs 15,000 crore for certain contact-intensive sectors and enhancing exposure threshold to Rs 50 crore from Rs 25 crore for MSMEs, small businesses and individuals for business loan purposes under Resolution Framework 2.0.

"Such steps will help borrowers to better mitigate the impact of pandemic’s second wave and we stand resolutely with every Indian to support all finance needs for a truly Atmanirbhar Bharat,” says George Alexander Muthoot, Managing Director at Muthoot Finance.

Agrees Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co. “Extending Rs 15,000 crore coverage to “contact intensive sector” on a medium term basis for 3 years was the need of the hour and seems to have been addressed. While the quantum may not meet the immediate needs of the economy, it would certainly benefit the borrowers who are otherwise healthy but are impacted purely by the pandemic to get this relief on an urgent basis,” says Sivaramakrishnan. “Increasing the eligibility of borrowers from having maximum aggregate exposure of Rs 250 million to Rs 500 million under Resolution Framework 2.0 will enable more restructurings outside IBC framework,” she adds. 

Abheek Barua, Chief Economist, HDFC Bank says the RBI ticked all the right boxes in terms of its response to the second wave. "The announcement of GSAP 2.0 for INR 1.2 lakh crore and the carve out for SDLs bonds in the program is likely to help ease the pressure in the bond market, especially given the higher state borrowing pressure and increase in Centre borrowings this fiscal," he says.

Barua says RBI's measure to provide liquidity support for contact intensive sectors is likely to aid credit flow to these sectors. "That said, a more equitable distribution of credit is likely to be contingent on the whether the assessment of risks is in line with the markup over reverse repo provided by the RBI to banks. Therefore, some form of credit guarantees is perhaps required for de-risking the system," Barua adds.

Rajni Thakur, Economist, RBL Bank appreciated the "fine balancing" act on part of the RBI in its monetary policy decisions. "Credit support to the economy remains agile and pro-active, with on tap liquidity facility for contact intensive sectors that are worst hit in the second wave, tweak in coverage of one-time restructuring scheme to increase the maximum exposure limit and another liquidity facility for SIDBI for on-lending and refinancing," Thakur said. 

Nish Bhatt, Founder & CEO, Millwood Kane International - an Investment consulting firm said the central bank's focus on growth, assuring proactive, preemptive policy support till growth stabilizes will positively impact the market sentiment. "The sector-specific approach to provide liquidity support from healthcare to hospitality will ensure a quick recovery, arrest job losses in the affected sectors," Bhatt said.

Madhavi Arora, Lead Economist, Emkay Global Financial Services said she did not see any action on the policy rate front in the coming months. "We are poised to see a more accountable and action-oriented RBI ahead. We reckon even as yields may inch up gradually and orderly, the RBI will continue to strive fixing skewed yield and maintain its preference for curve flattening (with GSAPs and OMOs). We see net OMO+GSAP purchases to the tune of Rs4.5-5tn in FY22,” said Arora.

GSAP is Government Security Acquisition Programme while OMO is Open Market Operations.

Reacting to the unchanged rates Arun Kumar Nayyar, CEO, NeoGrowth Credit said: "This will encourage the credit off-take and maintain benign interest rate scenario in the money market system.”

Jyoti Prakash Gadia, Managing Director, Resurgent India thanked the central bank for recognizing the crucial role played by MSME, by way of direct liquidity infusion specific sectors have been identified. "Funds for SIDBI of Rs 16,000 crore to be utilized for lending to small borrowers will also boost MSME support which is the need of the hour," he said.

Expert Take from Real Estate Industry

Spelling out specific impact that the policy outlook may have on the housing sector, Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure said, "Considering that the economic growth forecast for the current fiscal 2021-22 has been revised to 9.5 per cent from the earlier 10.5 per cent, Government should ensure that inflation is kept under check." Dutt expressed concerns that the cost of steel, cement, labour cost and other items have gone up threatening the viability of certain projects especially those who are looking for last mile funding. "The rationale of lower interest rates/EMI, attractive prices, ready to move inventory, protection under RERA and attractive schemes from developers, encouraging homebuyers to invest now instead of waiting," he said.

Echoing the sentiments, Dr. Niranjan Hiranandani, National President, NAREDCO said: "The low interest rate regime reflects ‘advantage borrowers’ and this is likely to continue for some more time.  The RBI has pursued the broad intent of dealing with weak spots in the economy by providing on tap liquidity, with additional lending to distressed sectors.”

Anshuman Magazine, Chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE said he welcomes RBI’s directed focus on infusing liquidity in the industry. "Infusing money in sectors such as hospitality and tourism will further benefit the overall realty sector,” Magazine said.

Shishir Baijal, Chairman & Managing Director, Knight Frank India was of the view that besides the monetary policy intervention, there was a greater need to provide adequate fiscal support to jump start consumption demand. "Demand stimulant measure like credit subsidy or tax waivers even for a limited period can play a transformative role until we reach the pre COVID-19 normalcy thresholds,” Baijal said.

Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL said:  "We believe that low home loan interest rates, realistic property pricing, the focus of developers on project completion and economic recovery will take the residential sales in all likelihood to better levels than 2020."

Ram Raheja - Director, S Raheja Realty said with no hike in repo rate, homebuyers can plan for a home loan in the near future while also getting enough time for their home buying process and still can get loans at prevailing low rates. "At today’s time as we are seeing RBI and banks are now focusing on other essential sectors to bring all sectors back in green which will work well in reshaping the economy," he added.

Rohit Poddar, Managing Director, Poddar Housing and Development said the reserves clocking $600 Billion is a relief and will potentially help in dealing with global spill over challenges. "Overall , measures announced by RBI will help boost the market confidence to push financial conditions of the business on the growth path. Consumption demand is the only way India's economy and industry can thrive. The need of the hour is high-speed vaccinations, which will assist to stabilize business across the country, resulting in increased consumption,” said Poddar.    

 Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory said with the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels.

Annuj Goel, Managing Director, Goel Ganga Developments is of the view that the home loan rates are at a historic low and by maintaining status quo RBI has practically ensured that home loan rates will continue to remain low over the next few quarters. "While this is certainly a big positive for existing home loan borrowers, with real estate being an interest-sensitive sector, the status quo may also pave way for the faster revival of the sector," he said.