The latest RBI credit policy has thrown a lifeline to real estate companies. I don’t think they thought RBI could have this kind of consideration for commercial companies?
No, it is commercial real estate and it includes residential. When they say commercial real estate, it means residential, retail, commercial all the three. That is how commercial real estate lending is defined in the banking system. It actually covers all the three parts which are all under recession at this point of time.
It is not commercial-commercial in the sense that you understand it but commercial bank lending. I was even confused when I first read it and my reaction was different. But it is obviously positive because a lot of projects have been held back — sometimes due to environmental clearance, sometimes due to some other permissions which have been delayed.
Projects have been delayed with the recessionary market plus with the approvals taking time. This is a breather for those projects which are not yet NPAs, which have not yet gone to NCLT. Otherwise more and more projects would go under NPA under the existing guidelines of the Reserve Bank.
But is one-year rollover enough?
It is not. I would have preferred that what was given to the SMEs would also have been given to real estate and that the turnover would be there for any other reason. Some of them could be due to bad market conditions or other situations like that. I wish it was more comprehensive. On behalf of ASSOCHAM, I can tell you as president that the clean chit given to SMEs of the rollover is far more open, which was what was done in 2008. We would have liked a blanket clearance like it was done in 2008 for real estate. We would have preferred that but anyway this is something. It is definitely a breather for many of the companies where extensions have taken place. They are positive net worth companies but they do not have that possibility and the delay is taking place. They unnecessarily become NPAs.
You did speak of this move being a breather but this coupled with what was doled out in the Budget by way of some sort of tax relief, do you believe that things are looking better for the real estate sector? These are at least small steps in the right direction?
The answer is yes. The second part to that is also put into the RBI’s other part which talks about a better induction of the lowering of real estate rates in terms of lending which will take place including home loans. That is a bigger amount. You must have seen they have talked about Rs 1 lakh crore to be given as relief where no CRR is required to be done for the banks.
They will be encouraged to lend to these segments which include real estate and SMEs. That gives an additional push to the banks to reduce the rates of interest on lending both in case of home loans and other segments including auto loans.
So, three points; one, what came in the Budget; two, relief to SMEs and to commercial lending; and the third part, where they have given Rs 1 lakh crore without the need to maintain CRR. That is a very big benefit going to banks . That is why my initial reaction was that they have not cut the repo rate and I was negative on reading that. But when you combine all the three together, it looks like a good statement from the RBI. What they have done for the residential sector, the commercial sector and the automobile sector combined will have a better effect on the economy.