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RBI Representation for amendment in Circular- 26.05.2020

Wed, 2020-May-27 04:03

To

The Governor, RBI

Subject: RBI/2019-20/53 DBR.DIR.BC.No.14/13.03.00/2019-20 dated September 4, 2019 to NBFCs/HFCs

Dear Sir,

During the current crisis emanating from the COVID-19,the RBI vide its announcements made on 27th March, 2020 and 22nd May 2020 has proactively come up with various announcements to infuse liquidity in the system including reduction in repo rates and reverse repo rates, moratorium of three months each on payment of all instalments falling due between March 1, 2020 and August 31, 2020 etc. Even before COVID -19, the RBI has been reducing the repo rates and the reverse repo rates consistently through multiple announcements. These steps by the RBI are highly appreciated.

2. Vide its circular no. RBI/2019-20/53 DBR.DIR.BC.No.14/13.03.00/2019-20 dated September 4, 2019, RBI had modified its ‘Master Direction on Interest Rate on Advances issued vide DBR.Dir.No.85/13.03.00/2015-16 dated March 03, 2016’ to link all new floating rates on personal or retail loans (Housing, Auto etc. ) to external benchmarks as follows:

  • Reserve Bank of India policy repo rate
  • Government of India 3-Months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL)
  • Government of India 6-Months Treasury Bill yield published by the FBIL
  • Any other benchmark market interest rate published by the FBIL.

3.The Real Estate sector, however, is not able to leverage the benefits of this reduction in repo rates. The major restricting factor is that while the above-mentioned circular directs the banks to link the floating rates on Housing Loans to external benchmarks, the same is not made applicable to NBFCs and HFCs.

Secondly, while the RBI has reduced 2.50% in repo rates since January 2019, the maximum reduction passed on by Banks to the borrowers has been between 0.7-1.3%, largely from August 2019 till date. In some cases, however, no benefit of repo rate reduction has been passed on at all.

4. Sir, it may be appreciated that the NBFCs and HFCs are the major source of financing to the Real Estate Sector and because of the impediments mentioned under point no. 3 above, the industry is getting access to finance at much higher rates.

5. Being the second largest employer in the country (about 52 million employed in the sector) and in view of the sector’s substantial contribution to the GDP &  the sector accounting for almost 11% of bank credit besides having backward & forward linkages with almost 250 industries including cement & steel etc., our survival is not just desirable, it is rather crucial for the economy.

6. In this background, it is our humble submission that

  1. The RBI’s instructions contained in ‘Master Direction on Interest Rate on Advances issued vide DBR.Dir.No.85/13.03.00/2015-16 dated March 03, 2016’  and the circular no. ‘ RBI/2019-20/53 DBR.DIR.BC.No.14/13.03.00/2019-20 dated September 04, 2019‘ may be suitably amended to be made applicable to include NBFC and HFCs.
  2. Appropriate directions be given to the Banks to pass on the benefit of the rate cuts to NBFCs/HFCs to enable them to lend to Real Estate sector at a lower rate of interest.

7. We shall be grateful for your kind & urgent intervention on the subject matter 

RBI Representation for amendment in Circular- 26.05.2020