The RBI Governor has used terms such as ‘medicine,’ ‘patient’ and ‘full course’ in his post-policy press conference. Perhaps, he was hinting that the patient (economy) is out of ICU but still in the hospital.
All measures that have been taken in the past have started to yield results, but the effects or the results are expected to show over the next couple of quarters, including the positive outcome of a better than expected monsoon across the country.
Unfortunately, the alarming aspect has been that credit growth has been slow while deposit mobilisation has become healthy. This would mean that no loans have been disbursed for new businesses and also there has been no significant capex done by existing companies.
The health of an economy can be measured by the credit off-take since creation of credit through mobilisation of financial resources is the key function of a successful economy. It would be a cause of concern if such funds are not utilised by industries. RBI and the banks are hoping that a revival would happen sooner than later since the government has very ambitiously projected a GDP growth rate of 5.5% for the current financial year.
Banks and housing financial institutions have been looking expectantly at the RBI to reduce the key rates which would make the borrowing cheaper and so also the lending. But that seems to have not been happening. The RBI as expected kept the policy rates at 8% (repo borrowing by banks) and maintained status quo on CRR at 4% (mandatory cash maintenance with RBI) and SLR at 22% (mandatorily investing in approved securities).
Many banks and HFIs have eased the lending rates by about 0.25% on home loans in the past couple of months to encourage borrowing since the institutions want to utilise their funds for lending. The home loan lending rates are expected to be in the same range with the festive season running for a month. With good liquidity in the hands of the banks & FIs and an appetite for real estate investment in the country, a decent traction is expected.
Real estate firms too have been selling aggressively going by the upbeat mood. Investing in property for self-dwelling is the top most priority for everyone and interested ones can shop around for the best of prices and interest rates. Since the RBI is dovish in its stance, offering a glimmer of hope that the rates in the future could head southwards, it would be a prudent idea to choose floating rate on home loans.
