India Inc. welcomes RBI’s policy stance

The Reserve Bank of India announced the decisions of its Monetary Policy Committee on Friday. It kept the repo rate unchanged at 4%. The RBI governor, Shaktikanta Das, said the central bank's policy stance would remain 'accommodative for as long as required'.

Here are some reactions from research analysts and some key figures from India Inc.

Today’s policy statement by RBI is a perfect exposition of doing “whatever it takes” to revive growth. With growth projections at -9.5 percent and inflation set to be higher at least for now and the possibility of renewed infections in many countries, the monetary policy committee has righty chosen to keep the policy stance accommodative and relying more on discretion based policy responses rather than being strictly rule-based. Accordingly, the decision to go down the OMO route for SDL borrowings, increasing the limit for risk weights for the retail portfolio up to ₹7.5 crores and linking housing loan risk weights to LTV ratio are policy innovations that will please the markets and nudge the term structure of rates lower. The policy has also targeted specific sectors that have high forward and backward linkages notably the retail and real estate sector.

Additionally, the decision to operationalize the co-origination model is right as it brings the best of banks and NBFC together. This will surely increase the reach of the financial sector at such a critical point. The other focus of development and regulatory policy namely discontinuation of automatic caution listing for exporters, 24x7 availability of RTGS, and perpetual validity of CoAs issued to payment operators are also welcome measures. Overall the policy is fixated to revive growth and has attempted to prepare a conducive ground for the same.

It affirms our beliefs that the worst is over for the Indian economy. The RBI governor also confirmed that the contraction in economic growth witnessed in the April-June quarter with 23.9 percent is behind us. He also accepts that growth is likely to pick up in the second half of the fiscal and enter into the positive zone in the January-March quarter. Further reduction in key interest rates was not a possibility at this juncture. The RBI’s decision to extend the scheme for co-lending to all NBFCs, HFC in respect of all eligible priority sector loans will allow greater operational flexibility to the lending institutions and is much welcomed.

Particularly this step would benefit borrowers of higher value loans. It would ensure that more credit is available to borrowers. This move is a much appreciated step recognising the role of the real estate sector in generating employment and economic activity. The RBI has through its proactive measures taken honest efforts to provide access to easier credit to smaller businesses. However, we believe further steps would be needed to revive the economy.

We welcome the measures announced by RBI in today’s Statement of Development & Regulatory Policies. The extension of co-lending model by the RBI will help expand leverage capacities of the HFCs and unlock value for us. The announcement made by the RBI Governor on rationalising the risk weights for all new housing loans until March 31st 2022 and the relaxation extended for the Loan-To-Value (LTV), shall give the much needed impetus for the housing sector. At the same time, home loans will become accessible and competitive for the customers. This move by the central bank addresses the urgency required to boost the real estate sector in the country. This will also lead to the desired recovery of the construction sector which has a very important role to play in creating employment and growth.

Policy is progressive and forward looking with growth centric initiatives. The measures are a potent force to support bond market, catalyze rate transmission and improve liquidity so as to be conducive to the revival prospects. Core segments like retail and MSME will also have better prospects by measures, such as, rationalisation of Risk Weight for housing loans, enhancement of regulatory retail cap and co-lending with NBFCs/HFCs. All in all, a feel good policy for the financial system and real segments.

The Monetary Policy was in line with expectations with no change in the repo or reverse repo rates. The MPC’s stance continued to be accommodative and dovish—the current high inflation level is expected to be transient and likely to taper off by Q4’FY21. While GDP growth is estimated to contract by -9.5% , high frequency data indicates a gradual uptick in many segments of the economy.

The policy had a lot of positives for the bond markets – doubling of the OMO amount, introduction of OMOs in SDLs, RBI to conduct on tap TLTRO of up to ₹1 lakh crore and extension of enhanced HTM limits of 22 percent up to March 31, 2022 for securities acquired between September 1, 2020 and March 31, 2021 are all encouraging steps.

RBI is clearly looking through inflation giving more priority to growth, bearing in mind that inflation is led by supply chain disruptions. India’s G,D.P. contracted by 23.9% in the April-June quarter of 2020. But the future quarters are expected to be better with the RBI forecasting GDP to contract by 9.5% in FY 2021. Importantly, the Central Bank believes that G.D.P. growth may turn positive by the fourth quarter.

The headline inflation rate was recorded at 6.7 percent during April-July 2020 due to strong supply-chain disruptions. This is above the outer limit of RBI’s medium-term inflation target 6%. The central bank continues to maintain its accommodative stance to allow elbow room for further policy interventions if required. Thus, the repo rates remained unchanged at 4%. So far, the RBI has slashed rates by 115 basis points this year to support the economy and real estate sector in particular, amid the Covid-19 pandemic.

RBI has rationalised risk weights for all new home loans which will be availed until 31st March 2022. Unlike the existing system where it was linked to both size of the home loan and loan to value (LTV), it will now be linked to only LTV of home loans. This is timely and a step in the right direction and is expected to provide a fillip to housing loans, thus having a positive impact on the residential sector.

The Reserve Bank of India’s announcement related to providing 24x7 facility for real-time gross settlement (RTGS) would support India to become an integral part of global financial markets, and provide wider payment elasticity to domestic companies and institutions. The RBI initiative would also enable almost all businesses to operate 24X7, with a payment system that supports trade and commerce. The FIS, Flavors of Fast report has already highlighted that India's growth was 213 per cent, handling 41 million transactions a day in real time payments. We would like to highlight that it’s a step in the right direction and aligns India with the elite League of Nations that offer 24X7 payments option. This move will certainly now encourage innovations in real-time payment system, and promote ease of doing business.

The ₹1 lakh crore on tap TLTRO window should enhance funding availability for companies as economic activity picks up in the second half of the year. The last TLTRO scheme had enabled BBB and A rated entities to access funding through bonds, which was otherwise challenging for them. The impact of the proposed scheme in ensuring transmission of funding to end users should be higher than earlier schemes on account of its on tap nature as well as the fact that banks can now disburse these funds through loans and advances as well, in addition to bonds / commercial paper.

Moreover, extending the scope of the co-origination scheme to all NBFCs (including HFCs) will help enhance credit flow to the unserved and underserved segments where NBFCs have better reach and last mile connect. With many NBFCs continuing to face funding access challenges, co-origination has the potential to be an effective business model which helps them leverage partnerships with banks to deepen customer connect and grow their assets under management in a funding light mode.

RBI reiterated its accommodative stance to continue for as long as necessary while keeping rates unchanged, as broadly expected. The focus has been on easing financial conditions, keeping liquidity very comfortable in the system and reducing the cost of money through on-tap ₹1 lakh crore TLTROs and OMOs in state development loans. Sectors of economy like FMCG, agriculture, autos and warehousing among others have been more resilient than others in Q2 and this augurs well for transport industry that ensures last mile connectivity. RBI’s policy measures will have a positive impact for those engaged in last mile lending as rural & semi-urban economy is continuing to show strong recovery.

Rationalisation of risk weight of housing loans is a welcome step by the RBI that could potentially boost housing demand across the country. With this move, housing loans would eventually get more affordable, thereby benefiting the homebuyers in this sluggish market. In fact, home loan EMIs are at an all-time low and reduction in stamp duties across major cities augurs well for the residential segment.

In line with expectations, the newly constituted Monetary Policy Committee (MPC) of the Reserve Bank has kept the benchmark lending rates unchanged, while maintaining an accommodative stance. Although the repo rate remained unchanged, it has been lowered by 115 bps since March 2020.

However, the weighted average lending rates on fresh rupee loans of scheduled commercial banks have fallen only by 47 bps during the same period. We expect banks to take cognisance of the delayed transmission of benefits to the end consumer and take corrective measures in the near term.

The Monetary Policy Committee (MPC) action of leaving the key interest rates unchanged today was largely on the expected lines. The Reserve Bank of India’s (RBI) top priority remains at reviving India’s economic growth. The strong indication from the RBI to maintain an accommodative stance on interest rates as long as it’s necessary, is a positive development. RBI is likely to keep a close watch on inflation, even if they think it’s driven by temporary supply shocks. We expect the RBI to have greater focus on driving credit flow into the system going ahead, rather than on benchmark rates.

As expected, the RBI kept policy rates unchanged, but said that it will maintain accommodative stance in current and next fiscal year—indicating a dovish undertone. The central bank announced various liquidity measures and other measures to help improve credit growth esp. for certain segments. The bond markets have therefore reacted positively with yields falling post the policy announcement, and for the equity markets sectors like banking, NBFCs (especially home loan providers) have reacted most positively.

The RBI’s decision of keeping the repo rate unchanged was on expected lines owing to the rise in inflation in recent months. However, they’ve maintained an accommodative stance which is positive for the economy. RBI's decisions to relax LTV guidelines and rationalize risk weights for home loans will further encourage homebuyers and their review of the co-origination model between banks and NBFCs and extended the scheme to all NBFCs (and banks) will improve the flow of credit in the economy. We are hopeful that these measures will strengthen recovery in residential demand and support construction activity as well.

RBI by increasing the OMO limits from ₹10000 Crores to ₹ 20000 Crores, it is also going to do State Development Loans OMO in the coming days to bring down the yield in that segment. It has allowed on tap borrowing for targeted long-term repo operations for CP, corporate bonds and even given loans to corporates. This should be beneficial for banks who are comfortable with the credits of corporates to on lend as banks borrowing rates are fixed, in case the repo rates are cut again, banks can re finance at lower rates also.

RBI has given everything which the markets have asked, and they have said they will look through these inflation numbers. The RBI also expects the current year G.D.P., growth to be negative 9.5 % and the CPI inflation to come at its target of 4% in the fourth quarter. These measures are extremely positive, and it should led to lower interest rates in the economy.

The RBI left the rates unchanged and yet delivered an extremely dovish monetary policy by taking measures to keep the risk free rate low and providing on-tap liquidity. Looking through the transient inflationary hump and supporting growth was a clear message sent out in today’s policy. Overall, the forward guidance was extremely favourable as there was an explicit message to keep policy accommodative at least until FY 2022.

The new external MPC members appear to be more dovish in their policy views. In past, they have been quite vocal on liquidity, credit market dynamics, and have advocated for the RBI to look at unconventional or untested measures. The minutes of the meeting, which will be released a fortnight later, will be an important document to watch to gauge their views now (within the mandate of inflation targeting framework).

The RBI policy is on expected lines, as it keeps the base rate unchanged and the policy stance accommodative. The probability of RBI cutting rates in the near future remains quite low in view of the higher inflationary pressures. RBI views the current spike in prices a "transient hump", as price level may moderate in Q4. But, with a huge government borrowing program ahead, the RBI will continue with the liquidity support. It is actually the liquidity that has been helping both the debt and the equity markets. There is always a constituency of market participants who want rate cuts. They will be certainly disappointed.

The reports which had come up last June that the rate cut cycle is coming to an end may gain more prominence now. In our view, it is not the rate cuts but the liquidity provision that matters today, when the market rates on short term bank and corporate papers have touched low single digits. The positioning of portfolios should continue on the same lines with an accent on the short and mid sector. The expected GDP contraction for FY 21 is placed at 9.50%, which is also quite close to most of the market estimates, with the Q4 number must likely turning positive number.

The RBI October 2020 policy, while being on expected lines of pause in rate cuts and maintaining an accommodative stance, has addressed the continuation of liquidity support for the sector. On-tap TLTROs and OMO purchases lowering bond yields will ease liquidity. Aligning risk-weights for individual housing loans to Loan to Value (LTVs) will help home lenders, in turn, also driving demand for the stressed real-estate sector. Macro outlook for FY21 looks muted with a decline forecast in G.D.P. by 9.5%, but buoyancy in rural demand and sector specific improvement could lead to a gradual recovery.

The outcome of MPC meet was largely in line with expectations. Rates have been kept unchanged and stance remains accommodative. Announcement of OMO (including OMO for SDL) and on tap LTRO will aid pushing more liquidity into the system and keeping interest rates in check.

Announcement to allow banks to increase exposure to retail and small borrowers up to ₹7.5 crore and rationalising risk weights for all new housing loans till March 31, 2022 are welcome from the borrower’s perspective but banks need to beef up their credit appraisal processes.

As the economy continues to be in a fragile state, recovery in growth assumes primacy. The RBI’s intent to support the economy even in the wake of rising inflation is comforting.

To support India’s revival of growth in the second half, the new MPC of RBI has announced that all the policy rates unchanged and inflation likely to ease to projected target by Q4 of FY'21. Though there may be some growth momentum in H2, the RBI feels the growth for FY 21 will contract to 9.5%.

Keeping in mind the accommodative stance of interest rate and providing easy liquidity conditions, the RBI announced Open Market Operations (OMO) worth ₹20 thousand crore, which will be used for buying GOI securities. OMO to be extended to state development loans (SDLs). This will ease the State’s borrowing programs backed by lower collection of GSTs. RBI also announced on tap TLTRO with tenors of up to three years for a total amount of up to ₹1 trillion at a floating rate linked to the policy repo rate. The scheme will be available up to March 31, 2021. Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by entities in specific sectors.

The status quo by the MPC on the repo rate front was on expected lines, and the unchanged 'accommodative' policy stance indicates further easing. The linking of risk weight of home loans to LTV for all new housing loans is a step in the right direction; this will benefit the real estate sector.

The real estate sector needs further ease in policy rates, a cut in interest rates is a direct stimulus for homebuyers as it reduces the overall cost of buying a real estate unit; the same is evident in the September sales data which saw a spike post the Maharashtra government reduced the stamp duty rates.

The liquidity easing measures announced by the central bank via OMO, TLTRO will help businesses tide over the current phase, growth plans. The central bank has already slashed key rates by 250 bps since February last year which has resulted in lending rates falling to a nearly two-decade low, with lending rates as low as 6.9%, this coupled with the policy measures announced by state and central banks have helped boost business sentiment for the real estate sector.

RBI’s status quo on rates was along expected lines, given the elevated inflation. But the MPC clearly delivered accommodative moves through non-interest rate tools. As an endeavor to lower the yields in bond markets, the central bank announced to expand weekly OMO purchases, include State Development Loans as part of its purchases and TLTRO of Rs1 trillion.

We believe, over time, Gsec 10-year yield will drop closer to 5%. Rationalization of risk weights on Individual housing loans, now linked only to LTVs, for all new HL sanctioned till March 2022, is a positive for banks. But HFC not mentioned may be a near-term dampener for housing finance stocks. We see possibility of further scope of 25-50 basis points cut in Repo policy rates.

Monetary policy announcement are supportive to overall economy and financial sector. Keeping accommodative stance and reassuring comfortable liquidity through on tap TLRTO of 1 lakh shows RBI strong focus on growth over inflation. More importantly banks can use TLRTO funds for giving loans in addition to prevailing guidelines for using in bonds and CP investment. This will also ensure continuance of benign interest rate regime.

At present risk weight on housing loans is based on amount of loan and LTV. Now it is linked with LTV only. Earlier all loans above ₹75 lakh were carrying same risk weight irrespective of low LTV of loan now even big loans with low LTV will carry low risk weight. This is good for HFCs lending big ticket size loans with low LTV and also boost to real estate sector. Lenders will offer differential interest based on LTV as their capital requirement will be lower with low risk weight on low LTV.

Now HFCs are included in co-origination of loans with banks. While details are yet to be seen how this work as in last over 2 years co origination could not take off.

Increasing retail loan cap from 5 crore to 7.50 crore indicate continuance of RBI focus on retail loans.

The RBI stance is out-and-out bullish for all markets. While the 'no-cut' was as per market consensus, it was the other steps and statements which were extremely dovish.

The MPC sees economic revival as the highest priority and will likely look-thru inflation in the near-term as much of it is due to supply disruptions. Open market operations on State Development Loans, On-tap LTRO are unconventional and unexpected positives. The new members of the MPC are perceived to be supportive of unconventional measures.

The measures announced in this policy and the RBI Governor's message to the bond markets shows that we may continue to see 'whatever-it-takes' measures to ensure lower risk-free rates, ample liquidity support, credit offtake and support for the large Centre and States borrowings in the second half of the financial year and to keep borrowing costs low for all segments of the economy.

Though the policy rate remains unchanged, this is a very dovish policy announcement. Rationalisation of risk weightage of home finance companies is an innovative initiative which will bring home loan rates down. This will be a boost to the real estate sector & housing companies. Proposed OMOs for State Development Loans will boost liquidity for SDLs. This will be beneficial for funds starved states.

The new MPC's first policy announcement is a fine example of being dovish without cutting rates. The positive response of the bond market with sharp cut in yields is a reflection of the success of the policy.

After six months of severe stress triggered by the severest lockdown so far, there finally is some good news on the economy. Some high-frequency indicators point towards economic recovery. The manufacturing PMI has shown a sharp increase from 52 in August to 56.8 in September, the highest in eight years! GST collections at ₹95,480 crore in September have recovered to increase by 3.9% from last year and were higher than August collections by 10.4%. Passenger vehicle sale has increased by 31%. Railway freight traffic showed a 15% increase. After a gap of six months, merchandise exports registered 5.3% growth, driven by outbound shipments of engineering goods, petroleum products, pharmaceuticals, and readymade garments. There was an increase in power demand and generation as well.

However, there are indications that this recovery is fragile. Capital expenditure on new projects declined by 81% in the second quarter over the corresponding period last year, showing a continuous declining trend in investments. Core sector growth was -8.5% in August. The credit-deposit ratio declined in the three fortnights ending 11 September 2020, and non-gold, non-oil imports continue to decline.

The RBI policy has been very pragmatic with focus on growth and measures to increase liquidity in the bond markets and therefore positive for both equity and fixed income markets. While policy rates remained unchanged due to higher inflation, the RBI has extended its accommodative stance into the next financial year. The RBI has also given more liquidity in the form of enhanced OMO purchases in G-secs and also for SDLs.

This will help in contraction of the G-sec and SDL spreads. The extension of HTM limit till FY22 will help the Banks further in subscribing to the G-sec and SDL auctions and planning their portfolio better. The scheme of on tap TLTROs for ₹1 lakh crore will add will help in reducing the credit spreads and also help to channelise credit where it is required at lower interest rates which will aid in growth.

The move by the central bank to keep rates unchanged is on expected lines as inflation has stayed above the mandated level of 6% for quite a few months now. Going forward the Accommodative policy stance indicates their willingness to act on rates but that may not happen soon enough as the supply side inflation may take some time to ease.

Announcement on liquidity measures will help businesses looking at raising funds at a lower cost, allowing banks to lend more retail and home loans by easing norms is a step in the right direction, this allows banks to lend more and help home loan borrowers.

Going forward, the expectation of RBI of GDP growth from current contraction is positive, help boost sentiment. Good monsoon, favorable high-frequency indicators, pent-up demand, and the upcoming festive season set the stage for an economic recovery.

On expected lines, MPC has continued with its pause stance while stating clearly that it will continue with the accommodative approach well into the next financial year given the significant uncertainty on the growth revival trajectory. Although RBI has highlighted some of the emerging green shoots in the economic landscape including a record agricultural output in the current kharif season, it has also for the first time in the current year has projected a GDP contraction of 9.5%. In the context of increased concerns on higher bond yields and higher government borrowings, RBI has given out a strong message that it will manage yields in an aggressive manner through larger OMOs which will also cover SDLs.

This along with an expectation of a moderation in inflation over the next few months, is expected to keep 10 year. Gsec yields at sub 6% levels and also facilitate higher borrowings by the states in the near term. Further, significant steps have been taken to ensure liquidity in the financial markets and also the availability of debt to specific sectors with the “on tap TLTRO” of another ₹1 lakh crore up to March 2021. Additionally, several regulatory measures such as tweaks on risk weights for home loans with higher equity contribution, increase of exposure limits to individual retail and small business loans and extension of co-origination models to cover all NBFCs and HFCs will help to incentivise higher lending to retail and SME sectors, thereby pushing the currently low credit growth.

Amidst its efforts to curb inflation—currently hovering above 6%—RBI, as expected, has kept both the repo rate and reverse repo rates unchanged at 4% and 3.35% respectively while maintaining an accommodative stance.

With real estate demand gradually seeing some green shoots of revival, especially in the wake of reduced stamp duty charges (in Maharashtra) and developers discounts and freebies, reduced repo rates would have given an added boost just before the upcoming festive season. But with consumer inflation still trending at the upper end of the apex bank’s band, and the policy repo rate also being substantially reduced by 140 basis points in 2020, today’s move was expected.

On a positive note, RBI’s move to rationalize risk weightage on home loans and linking housing loans risks only to loan-to-value is a welcome move. This announcement thus will definitely encourage banks to lend more to individual homebuyers without feeling the stress on their balance sheets.

Today’s monetary policy was as aggressively accommodative as possible without cutting the policy rate. The decision to remain accommodative for an extended period and to look through “transient humps” in inflation reveals an appreciation for the basic principles of economics –that a GDP contraction of 9.5 per cent is simply not compatible with demand side inflation pressures. If inflation has persisted over the RBI’s target limit, it has been driven by persistent supply side problems. Persistence itself cannot transform a supply driven problem to a demand side concern amenable to monetary policy driven containment. Given the stance, there is a significant probability of a rate cut in February, if not in December itself as inflation, as we expect, moderates.

The highlight of the policy was the RBI’s signal that it would “do whatever it takes” to align risk-free government bond yields with the fundamentals of the economy. This involved key changes such as an increase in the size of Open Market Operations and innovations like OMOs in State Government Bonds. Were these measures to succeed, as we expect them to, the upward pressure on yields that have built up on the back of heavy anticipated supply of central and state government bonds, is likely to moderate.

Has the RBI gone overboard in its effort to support growth? We think not. These are unprecedent times and the Indian economy’s revival efforts are hobbled by the lack of adequate fiscal support. If monetary policy does have to do the heavy lifting, it cannot do it within the confines of a conventional “take-no-risks” framework. Conservatives will fret over both inflation and financial stability risks given the combination of a liquidity glut and an effective dilution of prudential norms for things like home loans. We believe it’s a risk worth taking.

The Monetary Policy Committee (MPC) action of leaving the key interest rates unchanged today was largely on the expected lines. The Reserve Bank of India’s (RBI) top priority remains at reviving India’s economic growth. The strong indication from the RBI to maintain an accommodative stance on interest rates as long as it’s necessary, is a positive development. RBI is likely to keep a close watch on inflation, even if they think it’s driven by temporary supply shocks. We expect the RBI to have greater focus on driving credit flow into the system going ahead, rather than on benchmark rates.