Real Estate General

Home loans and other loans to individuals and businesses are set to become cheaper with the Reserve Bank of India releasing Rs 32,000 crore to banks through a half-percentage point (50 bps) cut in the cash reserve ratio (CRR) on Tuesday, a step which is also aimed at driving growth.
    The CRR, which is the level of deposits that banks have to mandatorily maintain with the RBI, was reduced to 5.5% from 6%. This marks the RBI’s first reduction in CRR since January 2009 when it had released funds to stimulate demand in the wake of the Lehman Brothers crisis.
    Bankers that TOI spoke to said that interest rates are headed down and it is a matter of time before lending rates also come down. Pratip Chaudhuri, chairman of the country’s largest lender, State Bank of India, said that interest rates would come down on loans to certain sectors where there is good growth and low delinquencies.
Sensex crosses 17k mark
    The cut in CRR saw the sensex making sharp gains to go past the 17,000 level in intra-day trade on Tuesday. But the move led to a crash in government securities. P 26 enters 40s, ends at 50.07
    The RBI’s decision resulted in the rupee going past the 50-mark against the dollar in intra-day trade on Tuesday for the first time in over two months. The Indian currency closed at 50.07. P 25 Banks unlikely to cut deposit rates
Mumbai: Reserve Bank of India’s decision to cut cash reserve ratio by 50 basis points to 5.5% will lead to fall in interest rates and also the lending rates, bankers said. However, banks might be circumspect of reducing deposit rates since there are many tax-free schemes offering returns ranging from 8.3-8.5%.
    The release of liquidity comes at a time when banks are seeing a slowdown in credit growth and have indicated to RBI that actual growth may be around 16% as against the targeted 18%. “The rate cut has lifted the mood and we should see an increase in (loan) volumes going ahead,” State Bank of India chairman Pratip Chaudhuri.
    Keki Mistry, vice chairman and CEO, HDFC, however, doesn’t expect rates to come down immediately. “I expect that in FY2012-13 interest rates will come down by around 150 basis points,” he said.
    The RBI move was cheered by the markets with the Sensex crossing the 17K level in intraday trades and the rupee appreciating against the dollar to go below the Rs 50-mark in intra-day trades.
    Announcing the reduction in the CRR, RBI governor D Subbarao said that he decided to reverse a two-year policy of interest rate hikes because of decelerating growth although inflation continued to remain aconcern. He said that the central bank was also prompted to ease liquidity because of a ‘structural shortfall’, which was forcing the banks to borrow anywhere between Rs 1.25 lakh and Rs 1.5 lakh from RBI in January. RBI also lowered its growth forecast to 7% from 7.6% earlier.
    Subbarao said that growth was slowing because of a global slowdown and other domestic factors in addition to the delayed impact of rate hikes by RBI over the past two years. “Overall, RBI has indicated that interest rates have peaked and over a period of time one could look at interest rates softening,” said M D Mallya, chairman, Bank of Baroda.
    The CRR cut is a positive development for banks which can earn interest income of over Rs 3,000 crore on funds which were hitherto locked with the RBI. SBI, for instance, with deposits of Rs 9.7 lakh crore, will see its lendable funds augmented by nearly Rs 5,000 crore.