RBI's infusion of Rs 5,000 crore in NHB may improve liquidity and demand for real estate sector

August 7, 2020: In a bid to increase the flow of liquidity in the housing sector, the Reserve Bank of India (RBI) announced an additional Rs 5,000 crore to the National Housing Bank (NHB).

"Additional special liquidity facility of Rs 10,000 crore will be provided at the policy repo rate consisting of : Rs 5,000 crore to the National Housing Bank (NHB) to shield the housing sector from liquidity disruptions and augment the flow of finance to the sector through housing finance companies (HFCs); and Rs 5,000 crore to the National Bank for Agriculture and Rural Development (NABARD) to ameliorate the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions in obtaining access to liquidity," RBI Governor Shaktikanta Das said in his bi-monthly monetary policy statement.

The RBI Monetary Policy Committee (MPC) noted that special refinance facilities for a total amount of Rs 65,000 crore were provided to all India financial institutions (AIFIs) – the National Bank for Agriculture and Rural Development (NABARD).

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Real estate sector experts welcomed the move saying that it will aid the sector reeling under liquidity crisis and improve demand.

The measures announced by RBI will accelerate the economy, enhance liquidity, improve flow of credit and deepen digital payment facilities, among others.

Laudably, its allotment of Rs 5,000 crore each to National Housing Bank and NABARD is a much-needed step for real estate sector reeling under the liquidity crisis. It will help infuse capital into the HFCs and eventually provide relief for developers battling liquidity issues in the wake of COVID-19.

Industry veterans also acknowledged the fact accorded by the RBI governor of maximum transmission of rate cut benefits percolating down the banking stream, which shall be reflected in easing the credit supply to meet working capital needs of the industry across the board.

While the sector was looking at a further revision in policy rate, to boost demand, the accommodative stance by the RBI, in the wake of high rate of inflation which may have necessitated keeping policy rates unchanged is appreciated.

The loan resolution plan, which allows for payment moratorium up to 2 years, for corporate and personal borrowers, should provide a breather to stressed real estate developers and individual borrowers in the housing segment alike.

This is an encouraging step for the housing sector which has been under immense stress since the lockdown. With unsold inventories available in major markets, homebuyers should consider buying homes now.

The move to fuel liquidity will uplift sentiment among developers and buyers alike given the infusion of additional liquidity to NABARD and National Housing Bank.

Ample system liquidity and lower rates are necessary to boost demand and credit offtake.

However, the RBI governor did not deliver an extension in loan moratorium which the industry was expecting. An extension in the Loan moratorium would have helped lower and middle-income groups to better manage their finances.

The cut in policy rates should boost demand ahead of the festive season. Real estate contributes a good chunk to employment of labourers and it's important to keep the economy moving. State Governments should give up on risk aversion and ease lockdown completely by the end of August, he added.

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