RBI does a balancing act, with credit policy

THE CREDIT POLICY SUGGESTS THAT THE RBI IS TRYING TO CURB FORMATION OF AN ASSET BUBBLE - IN SIMPLE WORDS, ATTEMPTING TO CONTROL ASSET PRICES FOR END USERS. KAMLESH PANDYA TAKES A LOOK AT THE REALTY FRATERNITY'S VIEW The fact that the RBI left interest rates unchanged came as a huge relief for real estate players. With the inflation index moving away from negative territory, the real estate industry was worried about a possible hike in interest rates and its impact on sales, says Rajen Bandelkar of the Raunak Group. "From a home buyer's perspective, the credit policy does not seem to be negative and that is good news for the real estate industry," he says. In terms of funds for the industry, "It seems to be an indication of a tighter regime to follow, in the days to come," adds Bandelkar.      The credit policy reflects two changes that could affect the real estate sector, explains Shobhit Agarwal, joint managing director (capital markets), Jones Lang LaSalle Meghraj. "SLR has been increased by one per cent and the provisioning for real estate loans has been increased to one per cent, from the earlier 0.4 per cent," he says, but adds that the impact on the sector will not be significant. "Banks will now be a little more cautious while lending to real estate players but given that interest rates are at their lowest in recent times, even a marginal hike due to this tightening in provisioning, will not affect the overall sector seriously," he explains. "Rather, it might help, as the central bank is trying to curb the formation of an asset bubble. In other words, it is trying to control the asset prices for end users. If implemented properly, this policy will benefit property buyers in the long run," he maintains.      According to Agarwal, the projected increase in inflation is in line with India's long-term inflation history and is automatically factored into the markets and overall market sentiments. "Therefore, this would not hamper the recovery that is currently being witnessed," he points out.      Manju Yagnik, vice-chairperson of the Nahar Group feels that the RBI's policies have been consistent with the nation's best interests and she expects the latest change to augur well for the nation's economy. "The RBI has refrained from hiking key rates, like repo or reverse repo and has hiked the statutory liquidity ratio (SLR) by just one per cent. The cash reserve ratio (CRR), the minimum amount banks need to park with the RBI, has also been left unchanged," she points out. Controlling inflation was the challenge that the RBI faced, even as it worked at ensuring that growth levels in the economy did not dip, said Yagnik.      The Ambit Capital Report, termed it as the 'end of loose credit and monetary policy'. The report said the policy indicated a strong probability of increase in interest rates, in 2010 and reduction in exposure to real estate. "We have been concerned, over the fragile balance sheet of real estate companies and we expect that the recent announcements in credit policy will increase the pressure on balance sheets," the report said.      The RBI could have tougher measures in store, in days to come, concludes Bandelkar.