RBI on Thursday relaxed the cash reserve ratio (CRR) requirement for scheduled commercial banks for retail loans for automobiles, residential housing and micro, small and medium enterprises (MSMEs).
Rate-sensitive auto and banking stocks ended the day in the green on Thursday, following key measures announced by the Reserve Bank of India (RBI) to improve flow of credit to select sectors such as auto, housing and medium & small enterprises. RBI on Thursday relaxed the cash reserve ratio (CRR) requirement for scheduled commercial banks for retail loans for automobiles, residential housing and micro, small and medium enterprises (MSMEs). Banking and auto stocks rose following the announcement of this measure. While BSE Realty Index gained intra-day, it ended the day in the red — largely due to a fall in DLF and Omaxe.
Apart from tweaking the norms for CRR, RBI also decided to give an extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate. This measure will give a window of opportunity to complete stuck projects and will also prevent accretion of bad loans for banks. S&P BSE Bankex ended the day at 35,819.26 points gaining by 338.41 points or 0.95%, while S&P BSE Auto closed with minor gains at 18,271.25 up by 0.12%. On the other hand, S&P BSE Realty closed marginally lower at 2,481.15 points down by 0.29% on Thursday.
KR Choksey Investment Managers MD Deven Choksey said, “With relaxation of CRR requirement banks are a beneficiary because of the ability to lend more and would also help borrowers because of higher liquidity in the system.” He added that the real estate sector would be in demand as government is systematically infusing the liquidity and there are many stress asset funds which have started coming to the market and buying out some of the stressed properties.
In the banking sector, IndusInd Bank and RBL Bank ended the day with more than 4% gains, while HDFC Bank and Kotak Mahindra Bank ended in the red. Among real estate stocks, barring DLF and Omaxe all other stocks ended the day in green. But out of 16 stocks in S&P BSE Auto index, nine stocks ended the day in red, with most losses seen in Tata Motors and Apollo Tyre.
In its policy, RBI has stated that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to MSMEs, over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020, from their net demand and time liabilities (NDTL) for maintenance of CRR. This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020.
CRR is the percentage of total deposits that bank mandatorily park with RBI and currently it stands at 4% of a bank’s total deposit. “Relief to MSMEs and real estate sector are welcome and will positively impact the valuations of lending companies and real estate companies,” HDFC Securities MD & CEO Dhiraj Relli said.
RBI even gave extension of DCCO of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector.
Real estate players believe steps taken by RBI will give relief to commercial real estate developers. LIC Housing Finance MD & CEO Siddhartha Mohanty said, “It will benefit the banks as they will not need to downgrade the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector.”
- First published in The Financial Express edition dated 7 February 2020.