Plenty of liquidity is available in the system, but there are issues related to risk aversion with banks, says Keki Mistry, vice chairman & CEO, Housing Development Finance Corporation. In a chat with Dimpy Kalra, Mistry said the rate cut of 35 bps will not have any impact on the real estate sector.
I think slashing it by an additional half a percent would have been a difficult task and was not practical also. The market was expecting a rate cut of 25 bps, but RBI has announced 35 bps instead of the expected level. I think it is a good move.
There is plenty of liquidity in the system and there are no issues of liquidity right now. Such issues were present in the system 2-3 months back. However, there are issues related to risk aversion with the banks as they are not willing to lend.
The rate cut of 35 bps will not have any impact on the real estate sector. Something important is that the banks must feel comfortable while lending money to real estate. Interest rate cut or increase of a quarter percent or 35 bps will not have any major impact on real estate. However, funding costs will come down for some of the bigger NBFCs and it is not a problem, at present, but the problem is that the banks are hesitating and are not willing to lend money to real estate developers. That risk aversion should go away.
I would like to inform that our cost doesn't come down immediately when the Reserve Bank cuts its interest rates. But we will pass on the benefits as soon as liquidity is transmitted into the system and our costs come down. We reduced our interest rate on all our existing loans a week ago.
Yes, it can increase bank exposure. But the issue was not whether the banks can increase the exposure, but it was more in terms of risk awareness that the bank has to lend. The current, single party exposure limit increase is a very positive and good move, but they should have increased it at the group exposure. At present, this group exposure limit stands at 25%.