MUMBAI, APRIL 15, 2015: There has been a positive fall-out of the Reserve Bank of India Governor Raghuram Rajan having nudged bankers during his annual policy statement on April 07, with some banks and Home Finance Institutions (HFIs) announcing ‘base rate cuts’, which would result in reducing home loan interest rates, said Niranjan Hiranandani, MD, Hiranandani Constructions Pvt. Ltd. (HCPL). “Quite a few banks and HFIs have followed the market leader State Bank of India, and have announced a base rate cut,” he added.
Elaborating on the possible impact of the rate cuts, Niranjan Hiranandani said, “At this point, I do not foresee the possibility of a rate-cut war – the reductions are a tad too minor to generate any ‘rate-cut war’ – but the move definitely will be positive for home buyers, with some banks and HFIs specifying that home loan interest rates will come down, and in some cases, even mentioning that existing home loan customers will derive the benefit of reduced EMI,” he added.
By rough estimates, a quarter percentage point reduction in interest rates reduces the equated monthly installment on a 20-years tenure; Rs 50 lakh home loan by Rs 850, said Niranjan Hiranandani. “From a real estate perspective, the revision in interest rates by Home Finance Institutions has the potential to be a ‘trigger’ and bring in a positive sentiment in the real estate industry,” he said.
“RBI Governor Raghuram Rajan after announcing the rate cut status quo said he was granting banks more time to reflect its previous rate cuts. The RBI Governor refuted claims that the cost of funds for banks had not fallen. In what seems like a reaction to this stance of the RBI Governor, leading banks and HFIs have announced reduced their lending rates. This may even result in something positive — in terms of the possibility of a further rate cut by the RBI,” said Niranjan Hiranandani.
Lower interest rates for project finance and home loans have the potential to be a key ‘trigger’ for real estate, everyone understands this, said Niranjan Hiranandani. “We have seen two unscheduled rate cuts since January 2015, which brought the repo rate down by 50 basis points to the existing 7.50. In this fiscal, I foresee another 50 bps rate cut,” he said. “I expect further rate cuts, but it is anyone’s guess when we willhave the next ‘rate cut’ from the RBI,” he said. In a lighter vein, Mr Niranjan Hiranandani pointed out that the two unscheduled rate cuts this year happened on festive days. “The festival of Akshaya Trittiya, which is perceived to has positive connotations for real estate, is coming up on 21 April. I have my fingers crossed and am hoping for some good news from RBI,” he concluded.
KEY WORDS: Positive, Status Quo, Reserve Bank of India, RBI, policy review, RBI Governor Raghuram Rajan, Niranjan Hiranandani, MD, Hiranandani, Constructions Pvt Ltd, HCPL, Akshaya Trittiya