The Reserve Bank of India has cushioned the impact of COVID-19 by offering a three-month moratorium on loans for individuals and companies. The choice of taking the RBI moratorium was left to the individuals and those who choose to opt for the moratorium will not be penalized with a default which would affect their overall credit rating.
This move has given a breather to buyers and developers. The non-payment of EMIs will not affect future credit and will not turn them into bad loans or NPAs. The 75 bps (basis points) rate cut combined with a reduction of 90 bps in the reverse repo rate, will definitely infuse more liquidity. One section of the developer community views this as an indicator that more loans will be offered to customers thus resulting in an increase in demand. The developers are also hoping for a fiscal stimulus package that would help them handle the immediate liquidity crunch that they might face due to the lockdown and reduced economic activity.
In January, the RBI had considered the request to recast several developer loans to all them to complete projects without becoming NPAs. A few sound projects were in consideration across the country to avail of this facility. A special window provision was made to provide priority financing of these stalled projects in the affordable and middle-income housing sector projects. If this combined with the RBI moratorium is taken into consideration, then most developers should see good demand and be able to complete their projects that have been long overdue.
From the view of the buyer, while the moratorium gives most people immediate relief from paying home loans, the reduction in repo rate has caused a dip in deposit interest. This will, in the long run, affect the savings for many people but in the short term might ease liquidity enough for people to avail cheaper loans if they want to purchase homes.
The COVID-19 has put the entire economy into a state of flux with a lot of uncertainty regarding the future of many businesses. While the first focus will be on recovering the economy back to normalcy, there will be a push to encourage people to buy more in order to stimulate several industries that have been impacted heavily due to this crisis. Cheaper loans with better terms might be an outcome of this economic flux that the world is experiencing right now. This might sound good on the surface for those who hope that people would invest in real estate now instead of the capital markets, but people may not be so easily swayed to break their savings in light of an uncertain future.
