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Reverse Repo Rates & TLTRO to Boost Liquidity into Real Estate Sector

Reverse Repo Rates & TLTRO to Boost Liquidity into Real Estate Sector

The recent Reserve Banks of India’s (RBI) measures have brought a much-needed sigh of relief to the realty sector. The central bank has permitted NBFCs (Non-Banking Finance Companies) to extend the time for commencement of commercial operations (DCCO) in regard of loans to commercial projects extends by an extra one year if the projects got deferred for reasons outside the ability to control of promoters. Such an extension will uplift the economic slowdown amidst coronavirus pandemic and provide sustenance to the real estate sector.

The RBI’s decision to reduce reverse repo rates by 25 basis points, it now stands at 3.75%, will boost liquidity in the economy and encourage banks to lend more to productive sectors. The reverse repo rate is a monetary policy tool used by the central bank to control liquidity, in case of a shortage of lending funds by commercial banks. With this additional liquidity, the commercial banks will able to lend to NBFCs and HFCs (Housing Finance Companies) will also accelerate and facilitates the bank credit flows toward the besieged.

According to the RBI information, NBFCs unsettled credit to the business land remained at INR 1,29,359 crore as of September-end 2019. The total liabilities profile of NBFCs is around 40-50% of the banking system and another 50-60% are from segments such as capital markets, retail moneylender and others.

NBFCs, unofficially known as shadow banks, which are major lenders to the MSME, infrastructure and real estate sectors that are affected the most by the COVID-19 related economic pressure.

The central bank also announced supplementary INR 50,000 crore funds through targeted long-term repo operation (TLTRO) and another re-financing window of INR 50,000 crore for institutions such as National Housing Bank Sidbi and Nabard. This will be done in two different ways – by giving an extra 10 percent loan by banks under a unique COVID-19 program and an amount of 10 percent of complete borrowings as refinance against existing listed non-convertible debentures (NCDs) possessed by the NBFCs & HFCs.

Various industry leaders and market experts applaud these measures taken by the central bank to rescue and resurrect the real estate sector. It gave a great sense of reassurance to all industry stakeholders by taking proactive measures and hopeful that it will ease credit flow and giving more purchasing power to realty investors and home buyers.


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