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Economy

RBI monetary policy: Steps taken for real estate important from sentiment and financial point of view, says Indiabulls Hsg

Updated : February 06, 2020 01:55 PM IST

Reserve Bank of India (RBI) in the monetary policy today permitted an extension of the timeline for commercial real estate projects. It said that the extension of Date of Commencement of Commercial Operations (DCCO) of project loans for commercial real estate will be permitted to be extended by a year without downgrading asset classification.

Sharing his views on the above development, Gagan Banga, vice chairman and managing director of Indiabulls Housing Finance said, “It is an extremely positive step. It does two things – one it is extremely important that more and more money goes into the project. It will hasten the process of both home and office delivery. The other thing it does is that the government of India has – through a spate of measures – already demonstrated that it is firmly behind the real estate sector. Now with this latest move of the RBI, real estate - which is often seen as not only a cyclical but a very sensitive sector - is seeing both the RBI and government backing it. That from a sentimental change perspective is extremely important. Both sentimentally, and from a financial flow, this is a very positive step,” he said.

“Most real estate projects are running behind the schedule given the fact that permissions have taken longer and so on. Whatever is under-construction will have to be put under a review to see whether it needs any sort of support especially given the dispensation, which says that if the delay is on account of measures which are beyond the developers’ control, the benefit can be passed on. So, every loan will have to be put through that, " he said, adding that it would be too premature at this juncture to say that X or Y percentage would benefit,” he added.

In terms of credit growth, Banga said, “This will definitely encourage lenders, especially the banks to go out there and give the last mile credit. However, I do not think it changes the longer term strategic thought behind what a lender should be doing.

"As a non-bank lender, we have taken the turn decisively to say that incrementally, we would like to see the book to be largely granular in retail. So, that intent is not going to change. However, the process of running down the entire book hastens, the process of refinance of this book also hastens. So, from a strategic point of view I think if earlier I was thinking that the wholesale book could be run down in 24-36 months, I would now say that it can actually be run down well within 24 months.”

On the demand front, he said, “With this the completion of project becomes a lot more certain and unless there is something absolutely wrong with the developer, there is no reason why the project should not get completed. This should also instill a confidence that cyclicality apart, the key other stakeholders of real estate industry which is the central bank and the government are backing the sector. This will have a positive impact on stabilising prices and over the next three-four months that will transmit into demand."

"There is no case for prices to start rising and it will be foolhardy for anyone to factor in a price rise. Moreover, with stable real estate prices, I would imagine a stronger demand coming back in a matter of two months itself," he further stated.

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