India Inc welcomes RBI’s rate cut, says will revive demand in auto, realty

Falling rates to help; rise in group exposure limits will support large companies

Indian Corp orates have hailed this move by RBI to cut the repo rate by 40 bps and to allow commercial banks to raise their group exposure limits from 25 percent to 30 percent. The two worst-hit sectors automobiles and real estate — will benefit the most from the 115-basis point cut in rates since March, they said. According to them, these policies will increase demand and revive sales.

The other two initiatives that RBI has taken and will surely help is (i). The announcement to convert the accumulated interest for the moratorium period into a term loan –  It will provide some relief as the borrower will not have to immediately repay the accumulated interest on the loan after the moratorium ends (ii). Lending institutions are being permitted to restore the margins for working capital to the original level by March 31, 2021. This is a step in the right direction

But the issue is how much of this will be passed to the customers both retail and corporate. Currently, the banks are not willing to do much of lending due to increasing corporate defaults,prevalent uncertainty and instead are more willing to invest it ,maybe let say bonds.But the bond yields are decreasing , and its prices are increasing.But as banks investment becomes good, the risk aversion will decrease and they will start lending.

The Reliance and Tata’s like Large Corporate group will significantly benefit from the increase in group exposure limits as this will help them tide over the short-term working capital challenges and will give them a breather to focus on restarting their business operations.

Coming to Automobile Sector ,  Close to 80 per cent cars in India are bought on credit. this policy will reduce the cost of borrowing for consumers, and hence will positively impact consumer demand.  Secondly,   it will provide some financial relief to borrowers with their equated monthly instalments (EMIs) .

Because of COVID-19 , the homebuyers ,developers ARE UNDER PRESSURE FOR PROLONGED STAY AT HOME WHICH HAS AFFECTED THEIR INCOME.The interest rate cut is a very positive news for real -estate but they want a one time debt-restructuring.

Finally, I believe that these policies are good, but in reality these does not matter much as people are afraid,are very uncertain and some have lost jobs and some are facing threat to their jobs.So, people are consuming less, investing less, instead trying to conserve money.The whole positive sentiment will only go up , when people start consuming more as we are a consumption driven economy. The only solution looks now is for Government to curb the spread of the virus quickly to truly revive the economy .