Even as the Reserve Bank of India kept the repo rate unchanged at its sixth bi-monthly policy review meeting, the central bank introduced a series of measures which are seen as a breather for many sectors.

The repo rate, which is the rate at which banks borrow from the central bank remains at 5.15%. However, the RBIs measures to boost credit growth mainly to housing, automobile, MSME sectors bought a lot of cheer in the market, evident with the Nifty Bank index gaining 1% following the news on Thursday.

Let us take a look at the measures which will boost the housing sector.

Low CRR requirements

One of the measures which will help address the liquidity concern is, banks will not need to set aside deposits to maintain the cash reserve ratio (CRR) for every new retail loan extended to automobiles, residential housing, and loans to micro, small and medium enterprises (MSMEs). Even as the exemption is only available for a fortnight for incremental credit ending July 31, 2020, financial analysts believe that this is expected to give a benefit of 25-30 basis points for borrowers in the targeted sectors.

The relaxation in the CRR norms would make sure that greater financing is available for car and homebuyers.

Cash Reserve Ratio (CRR) is the share of a bank's total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained with the latter in the form of liquid cash. At present the CRR is at 4%. The above measure would definitely help banks to monetise more of their liquidity. This move is also expected to lower interest rates further.

Long-term Repo Operation

The introduction of long-term repo by the Central Bank is also hailed as an optimistic development. Under this operation, the RBI will conduct term repos of one-year and three-year tenors of appropriate sizes for up to a total amount of Rs 1 lakh crore at the policy repo rate. This would mean that banks would get a fresh infusion of liquidity at the current repo rate of 5.15%. This move is seen softening the government security yields which at present is at 6%. The measure will also aid in bringing down lending rates and lower deposit rates which a big positive for banks and customers.

Relief to stuck projects in real estate

The government has lent a helping hand to all the stressed real estate housing projects through this new measure. As per the RBI norm, the central bank has extended loans given for restructuring of projects by 12 months, so that their asset classification is not downgraded. However, this is only for projects that were delayed for reasons which were beyond the control of realtors. The market has hailed this as a big move for the struggling real estate sector.

Experts believe that this measure is not just limited to commercial real estate and believe residential projects that were delayed on account of regulatory issue will also benefit.

Experts further make clear that commercial real estate (CRE) in the parlance of RBI refers to all the real estate asset classes- non-retail, and retail such as the construction of commercial buildings, IT buildings and even residential structures intended to be sold, for which banks have lent loans to developers.